FSS: "Last Year’s Bank Loan and Deposit Interest Rate Increases Were Too Large"

Increase in Bank Loan and Deposit Interest Rates Compared to Base Rate Hike
Greater Than Major US Banks and Past Rate Hike Periods
Interest Rates Expected to Stabilize and Decline in Q2

The Financial Supervisory Service (FSS) announced that last year, the increase in lending and deposit interest rates by domestic banks was greater than that of major U.S. banks and past interest rate hike periods, relative to the Bank of Korea's base rate hike.

On the 4th, during the 'Key Supervisory and Inspection Issues Briefing for the Banking Sector,' the FSS revealed that the average loan beta (change in loan interest rate relative to change in base rate) of the five major banks (KB, Shinhan, Hana, Woori, NH) was 69.5%, and the average deposit beta (change in deposit interest rate relative to change in base rate) was 53.1%. This means that when the base rate rose by 1 percentage point, the loan interest rate increased by an average of 0.695 percentage points, and the deposit interest rate rose by 0.531 percentage points. These figures were higher than those of major U.S. banks (loan beta 42.6%, deposit beta 27.8%).

In particular, based on new transaction amounts, last year the loan beta and deposit beta of domestic banks were recorded at 101.5% and 118.2%, respectively. These levels were also higher compared to past interest rate hike periods (54.4% and 75.8%).

The FSS analyzed, "In the loan interest rate sector, the proportion of variable-rate loans is relatively high, so borrowers' burdens increased with the rise in market interest rates," adding, "The proportion of variable-rate loans among mortgage loans at major domestic banks is about 67%, which is significantly higher than that of the U.S. (around 15%)."

Regarding deposit interest rates, the increase was amplified last year due to a temporary liquidity crunch following the Legoland incident. At that time, competition among banks to attract deposits intensified to secure funding, causing deposit interest rates to rise sharply.

The FSS forecasted, "Currently, loan interest rates based on new transaction amounts are continuously declining, and the upward trend in loan interest rates based on outstanding balances is also significantly slowing," adding, "Unless market interest rates turn upward, the base rate based on outstanding balances is expected to shift to a downward stabilization trend during the second quarter."

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