From 27 Trillion to 46 Trillion... Bank Interest Burden Increased by 20 Trillion Won in One Year as Interest Rates Rose

If interest rates rise by 2%P from the end of last year to the end of this year
Interest burden 27 trillion won → 46 trillion won

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] If household loan interest rates rise by 2 percentage points compared to the end of last year (end of December), the interest burden on financial consumers borrowing money from deposit banks is estimated to increase by about 20 trillion won. Financial consumers' interest burdens have sharply increased amid the interest rate hike period.

On the 27th, Hana Financial Management Research Institute analyzed that the interest burden on household loans based on deposit banks increased from 27 trillion won at the end of last year to 46 trillion won at the end of December. The interest burden amount was calculated by applying the interest rate based on the outstanding balance of household loans. Assuming a 2 percentage point increase compared to the end of last year, a rate of 5.01% was applied.

According to the Bank of Korea, household loan interest rates rose from 3.01% at the end of 2021 to 4.18% in October this year, with a high possibility of further increases. A financial sector official said, "Since October, the COFIX interest rate has risen sharply, and credit loan interest rates have also jumped," adding, "The average household loan interest rate has likely reached the 5% level."

In fact, in November and December combined, the COFIX (Cost of Funds Index), which serves as the benchmark for variable interest rates on mortgage loans, rose by nearly 1 percentage point. Accordingly, the variable interest rates on mortgage loans at commercial banks increased from 4-6% at the end of October to 5-7% at the end of December (upper to lower limits). During the same period, credit loan interest rates at commercial banks also rose from the 5-6% range to the 6-7% range.

With the interest burden increasing by about 20 trillion won in one year, the financial situation of the public inevitably worsens. A Hana Financial Management Research Institute official said, "Since the proportion of variable interest rates in household loans reaches 80%, there is a concern that the deterioration of household financial soundness will accelerate." They expect this trend to continue next year. He added, "The real estate market is shrinking, and loan interest rates above 4% are expected to continue, prolonging debt instability," and warned, "The worsening household debt instability may slow consumption and cause further declines in asset prices, leading to a vicious cycle."

As interest rates rise, the pace of increase in household loan balances has slowed. From January to October this year, mortgage loans increased by only 17 trillion won. Compared to the 29 trillion won increase in 2019, 46 trillion won in 2020, and 55 trillion won in 2021, when the real estate market was booming and 'Yeongkkeuljok' (those who borrowed heavily to invest) increased, this is a noticeable decrease. Other loans, including credit loans, decreased by 26 trillion won. This is a completely different atmosphere from 2020 and 2021, when the stock market was booming and 'Bittou' (debt-financed investment) emerged, with increases of 44 trillion won and 33 trillion won respectively.

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