Prolonged High Interest Rates Push Bank Loan and Deposit Rates Up... Household Loans Increase by 3.4 Trillion Won This Month

20 Time Deposits Exceeding Maximum Preferential Interest Rate of 4%
Household Loans Surge Despite Tightening Fears

"Just a few months ago, the benchmark interest rate was below 3.5%, but now it has risen to the 4% range. I am comparing interest rates at commercial banks to deposit some spare money."

As U.S. Treasury yields soar amid expectations of prolonged high interest rates in the U.S., domestic market interest rates and banks' loan and deposit rates are also rising accordingly.

According to the Bankers Association Consumer Portal on the 22nd, among the current 19 banks' time deposit products, the number offering the highest preferential interest rate exceeding 4.00% has reached 20.

These include SC First Bank's 'e-Green Save Deposit' (4.35%), Jeonbuk Bank's 'JB 123 Time Deposit' (4.30%), DGB Daegu Bank's 'DGB Main Transaction Preferential Deposit' (4.25%), Sh Suhyup Bank's 'Hey Time Deposit' (4.15%), Gwangju Bank's 'Good Start Deposit' (4.13%), Jeju Bank's 'J Time Deposit' (4.10%), NH Nonghyup Bank's 'NH All One e-Deposit' (4.05%), and Shinhan Bank's 'Solpyeonhan Time Deposit' (4.05%). The number of commercial bank time deposits offering over 4% interest has doubled in just one month.

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), recently mentioned that inflation in the U.S. remains high and that current interest rates are not sufficiently tight. With a prevailing outlook that high interest rates will persist for a prolonged period, expectations are growing that rates will remain at elevated levels for the time being.

An industry insider said, "Market interest rates are rising, and as time deposits taken out last year in the second half at high rates of around 5% mature, competition among banks to re-attract deposits is fierce."

Mortgage Loan Rates at Four Major Banks Rise 0.34 Percentage Points in One Month

According to the financial industry, the lower bound of loan interest rates at major commercial banks, which was in the 3% range just a month ago, has risen to the 4% range, and the upper bound, including fixed rates and credit loan rates following variable mortgage loan rates, is approaching the 7% range. With financial authorities intensifying pressure to curb household loans, the upward trend in interest rates is expected to continue for the time being.

According to the financial sector, as of the 20th, the mixed (fixed) mortgage loan interest rates (based on 5-year bank bonds) at KB Kookmin, Shinhan, Hana, and Woori Banks range from 4.240% to 6.725% annually. Compared to about a month ago on September 22 (3.900% to 6.490% annually), the lower bound rose by 0.340 percentage points, entering the 4% range.

Credit loan interest rates (grade 1, 1-year maturity, 4.620% to 6.620% annually) also increased by 0.060 percentage points on both the upper and lower bounds within one month.

The variable mortgage loan interest rates (newly originated linked to COFIX, 4.550% to 7.143% annually) at these banks also rose by 0.280 and 0.044 percentage points on the upper and lower bounds, respectively. This reflects the delayed impact of rising market and deposit interest rates, with COFIX (Cost of Funds Index), a key benchmark for variable rates, increasing by 0.160 percentage points in three months (newly originated amount basis 3.660% → 3.820%).

Recently, rising market interest rates have pushed up both fixed and variable mortgage loan rates at major commercial banks, eliminating the lower 3% range rates and pushing fixed and credit loan rates into the high 6% range, nearing 7%.

Bank of Korea: "Household Loan Growth Will Increase"

The problem is that despite the sharp rise in interest rates recently, household loans in the banking sector have not decreased but are instead increasing rapidly.

As of October 19, the outstanding household loans at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) totaled 685.7321 trillion KRW, an increase of 3.4027 trillion KRW compared to the end of September (682.3294 trillion KRW). The increase in about 20 days this month is already the largest in two years since October 2021 (+3.438 trillion KRW).

In particular, mortgage loans increased by 2.6814 trillion KRW (from 517.8588 trillion KRW to 520.5402 trillion KRW), and credit loans, which had decreased by 1.0762 trillion KRW last month, rebounded by 887.1 billion KRW this month. If credit loans increase in October compared to September following this trend, it will be the first increase in 1 year and 11 months since November 2021 (+305.9 billion KRW).

Regarding the outlook for household loans, Yoon Ok-ja, Deputy Head of the Market Management Team at the Bank of Korea, said, "In October, the portion of other loans that acted as a factor slowing household loans in September will be resolved, so the increase is expected to expand compared to September." She added, "The effect of the autumn moving season may appear, and housing transaction volume expanded somewhat in August compared to July, which could lead to mortgage loan execution with a time lag."

She continued, "The future trend of household loan growth will be greatly influenced by the development of the housing market and government loan regulation measures," adding, "Although there is high uncertainty this year regarding the housing market and the direction of loan interest rates, it is necessary to consider that household loan growth typically expanded in October and November compared to September, then contracted again in December due to seasonal low demand and bonus inflows."

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