Average Interest Rate on Bank Household Loans at 5.34%... Corporate Loans Also Surge to 5.27%

Increased Bank Loan Demand Due to Contraction in Corporate Bond Market

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Due to the Bank of Korea's base interest rate hike, the average interest rate on household loans in the banking sector rose to 5.34% last month. Additionally, with the corporate bond market shrinking and corporate demand for bank loans significantly increasing, the average interest rate on corporate loans also surpassed the 5% mark, reaching 5.27%.

According to the 'Weighted Average Interest Rates of Financial Institutions' statistics announced by the Bank of Korea on the 29th, the interest rate on household loans (weighted average, based on new loan amounts) at deposit banks in October was 5.34% per annum, up 0.19 percentage points from the previous month. This is the highest level since June 2012 (5.38%).

The interest rate on mortgage loans among household loans rose by 0.03 percentage points to 4.82%, while the interest rate on general unsecured loans increased by 0.60 percentage points to 7.22%.

The mortgage loan rate is the highest since May 2012 (4.85%), and the unsecured loan rate is the highest since June 2012 (7.89%).

The proportion of fixed-rate loans among household loans at deposit banks, based on new loan amounts in October, was 29.0%, up 5.0 percentage points from 24.0% in August.

The Bank of Korea explained that the increase in fixed-rate loans was influenced by the handling of the Anshim Conversion Loan.

The corporate loan interest rate (5.27%) rose by 0.61 percentage points in one month, marking the highest level since September 2012 (5.30%). In particular, the interest rate on large corporate loans increased by 0.70 percentage points to 5.08%, as demand for bank loans expanded due to rising benchmark interest rates and the contraction of the corporate bond market. The interest rate on small and medium-sized enterprise loans rose by 0.62 percentage points to 5.49%.

The average interest rate on total loans at deposit banks, combining corporate and household loans, was 5.26%, up 0.55 percentage points from 4.71% in September.

The loan-to-deposit margin, which is the difference between loan interest rates and savings deposit interest rates based on new loan amounts at deposit banks, was 1.25 percentage points, narrowing by 0.08 percentage points from 1.33% in September.

However, based on outstanding balances rather than new loan amounts, the total deposit interest rate (1.92%) rose by 0.26 percentage points, and the total loan interest rate (4.38%) also increased by 0.26 percentage points, keeping the loan-to-deposit interest rate spread at 2.46 percentage points, the same as the previous month.

Among financial institutions other than banks, the deposit interest rate at mutual savings banks (based on new 1-year fixed deposits) rose sharply by 1.45 percentage points in one month to 5.22% per annum. Credit cooperatives (4.59%) and mutual finance institutions (4.33%) also saw deposit interest rates increase by 0.93 percentage points and 0.95 percentage points, respectively.

Loan interest rates also continued to rise at mutual savings banks (11.31%), credit cooperatives (5.79%), and mutual finance institutions (5.38%).

The Bank of Korea stated, "Last month, the interest rate on savings deposits at deposit banks based on new amounts rose by 0.63 percentage points to 4.01% per annum due to the Bank of Korea's 0.50 percentage point base rate hike, market interest rate increases caused by financial market instability, and efforts to meet liquidity regulatory ratios."

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