Savings Bank Interest Rates Peak and Decline... Loan Thresholds for Low-Credit Borrowers Expected to Lower

Acuon, KB, Kiwoom, Hana Show Steady Decline from Jan to Mar
Reflecting Deposit Rate Cuts and Possible Base Rate Freeze
Increased Lending Capacity for Vulnerable Borrowers

There are observations that savings bank loan interest rates have peaked and are entering a downward trend. This is due to the growing expectation of a base interest rate freeze and the fact that savings banks competitively lowered deposit interest rates earlier this year, reducing funding costs. If the downward trend becomes more pronounced in the first half of the year, the loan threshold for low-credit borrowers at savings banks is also expected to somewhat lower.

According to the Savings Banks Association disclosure on the 4th, loan interest rates have been declining mainly at some savings banks from January to March this year. At Aekyoon Savings Bank, the loan interest rate for credit scores between 601 and 700 gradually fell from 17.78% in January to 17.01% in February, and further down to 15.89% in March. KB Savings Bank also recorded loan interest rates of 16.7% and 17.46% in January and February respectively for the same credit score range, but it dropped to 16.2% in March. Kiwoom Savings Bank similarly decreased from 15.29% in January to 14.78% in March, and Hana Savings Bank followed a downward curve from 16.67% in January to 15.44% in March.

This decline in loan interest rates is due to reduced funding costs. Savings banks, which secure funds through deposits and savings, have been continuously lowering deposit interest rates since early this year, and this is being reflected with a time lag. A representative from a savings bank explained, “Since deposit interest rates are falling, loan interest rates are expected to decrease further soon.” The slowdown in the rise of the base interest rate is also one of the factors pulling down loan interest rates.

Although only some savings banks have lowered loan interest rates so far, there is a possibility that the entire industry will join in as interest rate competition intensifies. Another savings bank official said, “Loan interest rates are being lowered reflecting complex market conditions such as base rate cuts and competitors’ interest rate levels.” In this case, borrowers with credit scores similar to those at the beginning of the year are expected to feel the interest rate cuts more clearly when taking out new loans.

[Image source=Yonhap News]

If the downward trend continues, the loan threshold for vulnerable borrowers at savings banks is also expected to lower again. Last year, when the base interest rate rose sharply, the industry significantly reduced loans to low-credit borrowers due to concerns about negative margins. As the burden of funding decreases, there is room to expand lending to low-credit borrowers. In fact, the number of savings banks lending to borrowers with credit scores below 600 increased from 17 in January to 20 in March this year.

However, the industry explains that if loans to vulnerable borrowers increase, loan interest rates may superficially rise. This is because low-credit borrowers with lower repayment ability are subject to relatively higher loan interest rates due to additional risk management costs.

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