Loan-Deposit Interest Rate Spread Narrows for 2 Consecutive Months... Savings Deposit Interest Rates Turn Downward

Average Household Loan Interest Rate at 4.82%... Lowest in 8 Months

Last month, bank loan interest rates fell more sharply than deposit rates, resulting in a narrowing of the interest rate spread between deposits and loans for the second consecutive month.

According to the "Weighted Average Interest Rates of Financial Institutions" statistics released by the Bank of Korea on the 30th, the average interest rate on savings deposits (weighted average based on new transactions) at deposit banks in April was 3.43% per annum, down 0.13 percentage points from the previous month. This marks a reversal to a decline within a month and is the lowest level since 3.38% recorded in September last year.

Pure savings deposits fell by 0.12% to 3.41%, mainly due to time deposits, while market-type financial products dropped by 0.20% to 3.50%, mainly due to financial bonds. Time deposits declined as the drop was larger for products with maturities of one year or more.

The interest rate on installment savings with maturities of one month to less than six months, first compiled in April this year, was 2.78%. Park Chang-hyun, head of the Financial Statistics Team at the Bank of Korea’s Economic Statistics Bureau, explained, "From April, the shortest maturity for installment savings and mutual installment savings was shortened from six months to one month, and new installment savings products with maturities between one and six months were launched, but the new transaction volume was only about 7.7 billion KRW," adding, "It seems that subscription conditions such as the monthly maximum deposit limit had an impact."

On the other hand, loan interest rates fell by 0.16 percentage points to 5.01% due to declines in benchmark interest rates and adjustments in additional and preferential rates. This is the lowest level since 4.71% in September last year. Loan interest rates have been declining for five consecutive months since December last year.

For corporations, both large enterprises (-0.18 percentage points) and small and medium enterprises (-0.14 percentage points) saw declines, resulting in a 0.16 percentage point drop to 5.09%. This was due to the fall in major benchmark rates such as negotiable certificates of deposit (CDs) and bank bonds, an increase in the proportion of loans with maturities under one year, and the application of interest rate reductions for small and medium enterprises.

Household Loan Interest Rates at Lowest Since August Last Year

Household loan interest rates fell by 0.14 percentage points to 4.82%, mainly driven by mortgage loans (-0.16 percentage points) and jeonse (key money deposit) loans (-0.31 percentage points). This is the lowest level since 4.76% in August last year.

Regarding the decline in mortgage loan interest rates, Park said, "Benchmark rates such as COFIX and bank bonds fell, major banks implemented loan rate reduction measures, and internet-only banks pursued strategies to expand mortgage loans," adding, "The increased proportion of relatively low-interest fixed-rate mortgage loans, such as special Bogeumjari loans and mixed-type mortgages, also had an impact."

In particular, when looking at interest rates by type, fixed-rate mortgage loans (4.19%) were lower than variable-rate loans (4.46%). The Bank of Korea explained that this is because banks apply much lower additional rates to fixed-rate loans such as mixed types, and it appears that banks favored fixed-rate loans to meet fixed-rate targets.

However, in April, fixed-rate mortgage loan interest rates fell by 0.13 percentage points, while variable rates dropped by 0.23 percentage points. The smaller decline in fixed rates compared to variable rates was influenced by the freeze in special Bogeumjari loan rates. Park noted, "Although mixed-type mortgage loan rates declined, the special Bogeumjari loan rates remained unchanged, so the overall decline in fixed-rate mortgage loan interest rates was relatively limited."

Jeonse loan interest rates fell by 0.31 percentage points to 4.11% compared to the previous month. This is attributed to the decline in benchmark rates such as COFIX and bank bonds, special promotional events by some banks, and preferential rates applied as part of win-win finance initiatives. The Bank of Korea believes that the newly published jeonse loan interest rates can also be used as a variable to analyze changes in demand by housing type in the housing rental market through comparisons with monthly rent conversion rates.

General unsecured loan interest rates fell by 0.14 percentage points to 6.30%, marking a decline for four consecutive months. This was due to interest rate reduction benefits provided through additional and preferential rates and an increase in the proportion of high-credit borrowers in some banks.

As loan interest rates fell more than deposit rates, the interest rate spread between deposits and loans narrowed to 1.58 percentage points, shrinking for the second consecutive month since March last year.

The proportion of fixed-rate loans among household loans (based on new transactions) was 56.3%, down 1.2 percentage points from the previous month.

The proportion of fixed-rate loans in mortgage loans rose by 1.3 percentage points to 80.7%, the highest since 80.8% in February 2020 when the second round of the Anshim Conversion Loan was issued. Although policy mortgage loans such as special Bogeumjari loans decreased, the increase in mixed-type mortgage loans, which have interest rate advantages, led to higher issuance.

Meanwhile, non-bank financial institutions saw both deposit and loan interest rates fall compared to the previous month, but savings banks’ deposit rates reversed to rise due to efforts to attract funds.

Deposit rates rose at savings banks (+0.18 percentage points) but fell at credit unions (-0.17 percentage points), mutual finance (-0.19 percentage points), and Saemaeul Geumgo (-0.14 percentage points). Loan interest rates declined across the board at savings banks (-0.11 percentage points), credit unions (-0.35 percentage points), mutual finance (-0.18 percentage points), and Saemaeul Geumgo (-0.27 percentage points).

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