Average Interest Rate on Bank Household Loans Surpasses 5%... Highest in 10 Years and 2 Months

On the 23rd, at the entrance of a commercial bank branch in Seocho-gu, Seoul, notices about jeonse deposit loans and credit loans for office workers are posted. [Image source=Yonhap News]

Due to the sharp base interest rate hikes by the Bank of Korea, the average household loan interest rate in the banking sector surpassed 5% last month for the first time in 10 years and 2 months.

According to the 'Weighted Average Interest Rate of Financial Institutions' statistics released by the Bank of Korea on the 28th, the household loan interest rate (weighted average, based on new loan amounts) of deposit banks in September was 5.15% per annum, up 0.39 percentage points from the previous month. This is the highest level in 10 years and 2 months since July 2012 (5.20%).

The interest rate on mortgage loans among household loans rose by 0.39 percentage points to 4.79%, and the interest rate on general unsecured loans increased by 0.38 percentage points to 6.62%.

The mortgage loan rate is the highest since May 2012 (4.85%), and the unsecured loan rate is the highest since March 2013 (6.62%).

The proportion of fixed interest rates among new household loans at deposit banks in September was 24.0%, down 0.5 percentage points from August (24.5%).

The Bank of Korea explained that despite the rise in interest rates, the share of fixed interest rates decreased because the new loan amounts of policy mortgage products with fixed interest rates, such as the Bogeumjari Loan, declined.

The corporate loan interest rate (4.66%) rose by 0.20 percentage points in one month. This is the highest level in 8 years and 9 months since December 2013 (4.67%). The interest rate on large corporate loans increased by 0.15 percentage points to 4.38%, and the interest rate on small and medium-sized enterprise loans rose by 0.22 percentage points to 4.87%.

The average interest rate on all loans of deposit banks, combining corporate and household loans, was 4.71%, up 0.19 percentage points from August (4.52%).

The loan-deposit margin, which is the difference between the loan interest rate and the interest rate on savings deposits based on new loan amounts at deposit banks, was 1.33 percentage points, down 0.21 percentage points from August (1.54%).

However, based on outstanding balances rather than new loan amounts, the total deposit interest rate (1.66%) rose by 0.18 percentage points, and the total loan interest rate (4.12%) increased by 0.21 percentage points, widening the loan-deposit interest rate spread (2.46 percentage points) by 0.03 percentage points.

Among financial institutions other than banks, the deposit interest rate of mutual savings banks (based on new 1-year fixed-term deposits) rose by 0.19 percentage points in one month to 3.77% per annum. Credit unions (3.66%) and mutual finance institutions (3.38%) also saw deposit interest rates increase by 0.26 percentage points and 0.16 percentage points, respectively.

Loan interest rates also continued to rise at mutual savings banks (11.04%), credit unions (5.43%), and mutual finance institutions (4.88%).

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