Short-term Financial Bond Yields Hit Highest Since 2008... Credit Loan Borrowers in Urgent Need of Cash Face Hardship

April 25th Surpasses 4.282%... Highest Level Since 2008 Global Financial Crisis
Top Limit of Credit Loans at 5 Major Banks Exceeds 7%
"Credit Loan Families Must Tighten Their Belts Even More"

Photo by Getty Images Bank

[Asia Economy Reporter Minwoo Lee] The short-term financial bond yield, which serves as the benchmark for credit loan interest rates, has surged to its highest level since the 2008 global financial crisis. With the upper limit of credit loan interest rates at the five major commercial banks already surpassing 7%, and the recent base rate hikes being factored in, borrowers are expected to face an even greater interest burden going forward.

According to the Korea Financial Investment Association on the 27th, the 6-month financial bond (unsecured, AAA) yield recorded 4.282% (based on the average market price) on the 25th. This not only set a new annual high but is also the highest since January 2, 2009, the first trading day of that year, when it was 4.56%. Essentially, it has risen to the highest level since the 2008 financial crisis. Compared to the early-year level of around 1.5%, it has increased nearly 2.7 times this year.

Since the 6-month financial bond yield typically serves as a benchmark for credit loan interest rates, borrowers are expected to face a heavier interest burden. According to the Korea Federation of Banks, the average interest rates on household credit loans handled by the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?already ranged from 5.72% to 6.0% as of September. Even excluding low-income financial products like Saessal Loan, the rates stand at about 5.15% to 5.85%. The average interest rate for high-credit borrowers (KCB credit score 951?1000) on household loans has also exceeded 5%, ranging from 5.14% to 5.45% annually.

Currently, the interest rates on credit loan products available for subscription are also soaring, approaching the 7% range. The upper limit of the interest rate for KB Kookmin Bank’s flagship credit loan product, ‘KB Jikjangin Dundeun Credit Loan,’ surpassed 7% at 7.35% as of the previous day. The interest rate ranges for credit loans at the other four major banks?Shinhan, Hana, Woori, and NH Nonghyup?are between 5.81% and 6.84%, also nearing the 7% threshold.

As the interest burden increases, the delinquency rate on credit loans is rising faster than that on mortgage loans. According to the ‘Status of Domestic Banks’ Won-denominated Loan Delinquency Rates as of the End of August 2022 (Preliminary)’ released by the Financial Supervisory Service on the 19th, the delinquency rate on household loans excluding mortgage loans (such as credit loans) was 0.42% at the end of August, up 0.05 percentage points from the previous month and 0.06 percentage points from the same month last year. This significantly exceeds both the delinquency rate on mortgage loans (0.12%) and its increase (0.01 percentage points compared to both the previous month and the same month last year) during the same period.

If the Bank of Korea implements another ‘big step’ (a 0.50 percentage point hike in the base rate) next month, loan interest rates are expected to rise even more rapidly. A financial industry official said, “Coupled with the economic slowdown, borrowers’ pain will intensify,” adding, “Banks also expect the decline in household loans to continue for the time being.”

This content was produced with the assistance of AI translation services.