Deposit-Loan Interest Rate Spread Narrows After 3 Months... Slight Increase in Deposit Interest Rates

[Image source=Yonhap News]

Last month, the interest rates on deposits in the banking sector slightly increased while loan interest rates continued to decline, resulting in a narrowing of the deposit-loan interest rate spread for the first time in three months.

According to the "Weighted Average Interest Rates of Financial Institutions" statistics released by the Bank of Korea on the 28th, the average interest rate on savings deposits (weighted average based on new contracts) at deposit banks in March was 3.56% per annum, up 0.02 percentage points from the previous month.

The pure savings deposits remained steady at 3.53%, while market-type financial products (3.70%) rose by 0.13 percentage points, mainly driven by financial bonds and negotiable certificates of deposit (CDs).

The Bank of Korea explained, "This appears to be due to the concentration of financial bond issuances in early March when market interest rates were high, as well as special promotional events related to financial bonds conducted by some banks."

On the other hand, loan interest rates, centered on loans to small and medium-sized enterprises and mortgage loans, fell by 0.15 percentage points to 5.17%.

This marks a decline for four consecutive months since December last year.

For corporations, both large enterprises (-0.05 percentage points) and small and medium enterprises (-0.17 percentage points) saw decreases, resulting in a 0.11 percentage point drop to 5.25%.

For households, the rate fell by 0.26 percentage points to 4.96%, mainly due to decreases in mortgage loans (-0.16 percentage points) and general credit loans (-0.11 percentage points).

The Bank of Korea attributed the decline in mortgage loan rates to "the fall in key benchmark interest rates such as COFIX (based on the applicable month) and bank bonds (5-year), as well as the expansion of preferential home mortgage loans with relatively lower interest rates."

With deposit rates rising and loan rates falling, the deposit-loan interest rate spread narrowed to 1.61%, reversing the trend for the first time in three months.

The proportion of fixed-rate loans among household loans (based on new contracts) rose by 9.2 percentage points from the previous month to 57.5%. The Bank of Korea analyzed this as "due to the expansion of preferential home mortgage loans and the continued interest rate advantage of fixed (mixed) mortgage loans."

Meanwhile, both deposit and loan interest rates at non-bank financial institutions declined compared to the previous month.

Deposit rates fell in the order of savings banks (-0.52 percentage points), credit unions (-0.42 percentage points), Saemaeul Geumgo (-0.41 percentage points), and mutual finance (-0.34 percentage points), while loan interest rates declined in the order of savings banks (-0.45 percentage points), mutual finance (-0.21 percentage points), credit unions (-0.15 percentage points), and Saemaeul Geumgo (-0.06 percentage points).

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