[1mm Financial Talk] Disappearance of '4% Range' Amid Market Interest Rate Decline...

Due to the decline in market interest rates, the number '4' is disappearing from deposit and loan products in the banking sector.

According to the Bankers Association on the 26th, the 12-month fixed deposit interest rates at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) were recorded at a maximum annual rate of 3.70~3.75%. Considering that the fixed deposit rates reached a maximum of 3.95~4.05% in mid-to-late last month, 4% range products have effectively vanished within about a month.

This trend is also emerging in loan products. As of the 22nd, the mixed (fixed) mortgage loan interest rates at the five major commercial banks ranged from 3.39% to 5.42%, with the lower bound falling below 4%. On the same date, KB Kookmin Bank’s mixed mortgage loan rates continued to decline, ranging from 3.38% to 4.78%.

The reason for the disappearance of '4' in deposit and loan products in the banking sector is attributed to the influence of the U.S. Federal Reserve (Fed) signaling future interest rate cuts. At the Federal Open Market Committee (FOMC) meeting held on the 13th, the Fed indicated four rate cuts next year and presented a median target interest rate of 4.6% for next year. This is 0.65 to 0.90 percentage points lower than the current U.S. benchmark rate (5.25~5.50%).

As expectations for rate cuts grow, market interest rates have also plunged sharply. According to the Korea Financial Investment Association, the 5-year bank bond yield was 3.793% as of the 22nd, the lowest level this year. This is 101.7 basis points (1bp=0.01%) lower than at the end of October (4.810%). The 5-year bank bond yield is typically used as a reference rate for mixed mortgage loans.

A notice about personal credit loan and mortgage loan interest rates is posted at a major bank in Seoul. Photo by Jinhyung Kang aymsdream@

The 1-year bank bond yield, used as a benchmark for 1-year fixed deposits, also fell to 3.756%, down 39.5 basis points from two months ago (4.151%). This explains why 4% range deposit products have disappeared at the five major banks.

However, the financial sector views the recent market interest rates as reflecting expectations of possible future rate cuts, so it advises caution in managing deposits and loans. It is necessary to observe how much and how quickly the Fed will actually lower rates, and what direction the Bank of Korea, which has been refraining from raising rates as much as possible, will take.

An official from a commercial bank said, "While the Fed’s indication of rate cuts is positive, there is a physical time gap until the actual cut, and it is difficult to guarantee that the pace of decline will be fast," adding, "Rather than immediately expecting rate cuts and executing loans or targeting variable-rate mortgages, it is necessary to monitor the trend."

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