Mortgage and Credit Loan Rates Soar Past 6%... Saemaeul Geumgo Bank Run Domino Effect

Mass Sale of Saemaeul Geumgo Bonds... Raising Bank Bond Yields
Loan Interest Rates Increase as Commercial Banks' Funding Costs Rise
June COFIX Up 0.14 Percentage Points... Variable Mortgage Rates Increase

On the 6th, a notice regarding 'Protection of Savings and Deposits' was posted at the MG Saemaeul Geumgo Gyeonghuigung Branch in Jongno-gu, Seoul. Photo by Dongju Yoon doso7@

The domino effect caused by the Saemaeul Geumgo bank run incident has pushed up loan interest rates at commercial banks. The upper limit of mortgage and credit loan interest rates surpassed 6% in July. Based on the five major banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) as of the 17th, the variable mortgage loan interest rates ranged from 4.21% to 6.15%, and fixed rates ranged from 3.98% to 5.9%. Credit loan interest rates (6-month maturity) were between 4.42% and 6.29%.

The main reason for the rise in bank loan interest rates was the increase in bank bond yields, which are the source of loan funds. According to the Korea Financial Investment Association, the 5-year bank bond yield, which serves as the benchmark for fixed-rate mortgage loans, rose from 3.96% on May 2 to 4.22% on July 14. The 1-year bank bond yield, which is the benchmark for credit loans and variable-rate mortgage loans, also increased from 3.64% to 3.87% during the same period.

A representative from a commercial bank explained, "Last week, Saemaeul Geumgo sold off bonds it held to respond to the bank run incident, causing turmoil in the bond market. The flood of supply led to a drop in bond prices, which in turn caused bond yields to rise. Consequently, bank bond yields increased, affecting bank loan interest rates as well."

According to the Korea Financial Investment Association, the amount of bonds sold by the mutual savings and credit sector, which includes Saemaeul Geumgo, from July 3 to 14 was 5.0368 trillion won. This is about five times the amount sold in June, which was 1.0656 trillion won.

As bank bond yields surged, banks feeling the pressure chose to slightly raise deposit interest rates to secure funding. For example, KB Star fixed deposits increased from 3.70% in early June to 3.71% currently, and NH Nonghyup All One e-Deposit rose from 3.80% to 3.90% during the same period.

Another commercial bank official said, "Mortgage loan interest rates hit a low point around May this year, dropping to the 3% range. Afterwards, as financial authorities announced stricter liquidity regulations starting in July, banks increased the issuance of bank bonds, causing yields to rise. The Saemaeul Geumgo incident further fueled the rise in loan interest rates."

From the 18th, variable mortgage loan interest rates at commercial banks will rise further. This is because the COFIX (Cost of Funds Index), which serves as the benchmark based on new loan amounts in June, jumped to 3.70%, 0.14 percentage points higher than in May (3.56%). KB Kookmin Bank and Woori Bank will raise their variable mortgage loan interest rates by 0.14 percentage points compared to the previous day, and NH Nonghyup will increase theirs by 0.04 percentage points.

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