Last Month Sees Both Loan and Deposit Interest Rates Rise, While Mortgage Loan Rates Decline

Last month, both loan and deposit interest rates in the banking sector turned upward. Although mortgage loans and jeonse deposit loans saw slight declines in interest rates, the rise in general credit loan rates led to an overall increase in household loan interest rates.

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 contracts) at deposit banks in May was 3.56% per annum, up 0.13 percentage points from the previous month. This marks a reversal to an upward trend after one month.

Among savings deposits, pure savings deposits such as time deposits (3.50%) rose by 0.09 percentage points, while market-type financial products (3.71%) increased by 0.21 percentage points.

Last month, the overall average loan interest rate (weighted average, based on new contracts) at deposit banks was 5.12% per annum, rising 0.11 percentage points and marking an upward reversal after six months.

The corporate loan interest rate (5.20%) increased by 0.11 percentage points from the previous month, with large corporations rising 0.16 percentage points and small and medium enterprises rising 0.09 percentage points.

Park Chang-hyun, head of the Bank of Korea’s Financial Statistics Team, explained that the rise in corporate loan interest rates was due to "increases in key benchmark rates such as negotiable certificates of deposit (CDs) and bank bonds, as well as some banks handling high-interest corporate loans."

(Data provided by Bank of Korea)

The household loan interest rate (4.83%) rose by 0.01 percentage points despite mortgage loan and jeonse deposit loan rates falling by 0.03 and 0.02 percentage points respectively, because general credit loan rates increased by 0.14 percentage points.

Looking at mortgage loans by interest rate type, variable-rate loans fell by 0.07 percentage points to 4.39%, and fixed-rate loans decreased by 0.03 percentage points to 4.16%.

The key benchmark rate for variable-rate mortgage loans, the Cost of Funds Index (COFIX), declined, while the 5-year bank bond rate, a key benchmark for fixed-rate mortgage loans, rose, resulting in a larger decrease for variable-rate loans compared to fixed-rate loans.

The Bank of Korea analyzed that the freeze in the Special Bogeumjari Loan interest rate was also a reason for the smaller fluctuation in fixed-rate interest rates.

Park explained, "Jeonse deposit loan rates fell due to the decline in COFIX and special promotional events by some banks. General credit loan rates rose for the first time in five months due to increases in benchmark rates such as bank bonds and a rise in loans to low- and medium-credit borrowers at some banks."

The interest rate spread between loans and deposits narrowed for the third consecutive month to 1.56 percentage points, as the increase in deposit rates (0.13 percentage points) outpaced that of loan rates (0.11 percentage points).

The proportion of fixed-rate household loans (52.9%) fell by 3.4 percentage points due to a decrease in Special Bogeumjari Loan issuance and increased demand for variable-rate loans, reducing the share of fixed-rate mortgage loans.

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