Mortgage Loan Interest Rates Top 8% → Dropped to 6% Range

Commercial Banks Adjust Interest Rates Around Lunar New Year Holiday
Decrease of About 1 Percentage Point

As the U.S. central bank, the Federal Reserve (Fed), hinted at additional interest rate hikes, attention is increasing on whether the Bank of Korea's Monetary Policy Committee will raise rates at its meeting scheduled for the 25th. The photo shows the loan counter at a commercial bank in downtown Seoul on the 19th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Sim Nayoung] The variable interest rates on mortgage loans, which had risen to 8% at the beginning of the new year, have dropped to 6% at all five major banks. This is thanks to the banks lowering their loan interest rates around the Lunar New Year holiday. The reduction was about 1 percentage point, changing the leading digit of the loan interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup).

According to the financial industry on the 22nd, NH Nonghyup Bank's variable interest rate fell to 5.18~6.28% as of the 20th, just before the holiday started. It was 5.98~7.08% the day before, a drop of 0.8 percentage points. An NH Nonghyup Bank official stated, "We decided to lower the preferential interest rate by 0.8%, but it is uniformly applied to all customers without any separate conditions."

On the same day, Woori Bank also lowered its mortgage loan variable interest rate by 0.4 percentage points to 5.96~6.96%. Until the previous day, it was 6.36~7.36%, so it was adjusted downward in just one day. Woori Bank had already reduced the additional interest rates on mortgage loans and jeonse loans on the 13th, and took further reduction measures within a week.

KB Kookmin Bank will lower interest rates starting from the 26th, right after the Lunar New Year holiday. The variable interest rate on mortgage loans will be reduced by up to 1.05 percentage points based on the new COFIX, and the variable interest rate on mortgage loans will be lowered by up to 1.05 percentage points based on the new COFIX and up to 0.75 percentage points based on the outstanding balance COFIX.

Internet banks have also joined this trend. K Bank lowered the interest rates on unsecured loan products by up to 0.7 percentage points depending on credit ratings on the 17th, reducing the lowest interest rate for new unsecured loans from 5.62% per annum to 4.92% per annum. The lowest interest rate for overdraft accounts also dropped from 6.13% per annum to 5.43% per annum.

Background for Lowering Loan Interest Rates

The banking sector’s decision to lower loan interest rates was largely influenced by pressure from financial authorities. Financial Supervisory Service (FSS) Governor Lee Bok-hyun has been repeatedly issuing warnings to banks. "Banks need to provide more meticulous management and support to prevent citizens struggling due to rapid interest rate hikes from falling into delinquency and insolvency." (Bank CEOs meeting held on the 18th) "We will continuously inspect and monitor banks’ interest rate calculation and operation practices." (Executive meeting on the 10th) A representative from a commercial bank said, "Following the meeting between the FSS governor and bank CEOs, measures to reduce loan interest rates have been continuously implemented."

Market interest rates, which influence loan interest rate calculations, are also stabilizing downward. The AAA-rated 1-year corporate bond yield was 3.774% as of the 19th. It had surged to 5% in November last year but has since declined. The COFIX (Cost of Funds Index) based on new transactions, announced on the 16th (December last year data), was 4.29%, 0.05 percentage points lower than the previous month (4.34%), contributing to the reduction in mortgage loan interest rates.

COFIX is the weighted average interest rate of funds raised by eight domestic banks. When the interest rates on banks’ funding sources such as deposits and bank bonds rise, COFIX rises, and loan interest rates also increase accordingly. Most banks base their mortgage loan interest rates on COFIX.

Loan Delinquency Rates Slightly Rising

Meanwhile, loan delinquency rates are rising. The Financial Supervisory Service announced that as of the end of November last year, the delinquency rate on won-denominated loans at domestic banks (based on principal and interest overdue for more than one month) was 0.27%, up 0.02 percentage points from the previous month. Compared to a year ago, it rose by 0.01 percentage points.

At the end of November last year, the delinquency rate for corporate loans was 0.29%, and for household loans, it was 0.24%. Both increased by 0.03 percentage points and 0.02 percentage points respectively from the previous month. The delinquency rate on won-denominated loans at domestic banks was 0.36% at the end of 2019, then decreased to 0.28% at the end of 2020 and 0.21% at the end of 2021. However, it has recently shown a slight increase, mainly in household unsecured loans.

Due to the extension of loan maturities and repayment deferrals for small business owners affected by COVID-19, overall delinquency rates remain low. The FSS stated, "Although the delinquency rate on won-denominated loans at domestic banks is still considered to be at a good level, it is necessary to proactively prepare for the possibility of increased credit losses due to worsening domestic and external economic conditions."

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