Final 'Household Loan Demand' Management... KB, Shinhan, Woori Raise Interest Rates Again in August

Household Debt Management Ahead of September Stress DSR Phase 2 Implementation
Woori Bank Raises Rates by 0.1~0.4% Points from 12th
Shinhan Bank from 7th, KB Kookmin Bank from 8th Also Increase Rates
Mortgage Loans, Dedicated Loans... Now Including Apartments, Multi-Unit and Multi-Family Housing
Financial Authorities Tighten Oversight... Kim Byunghwan: "Comprehensive Response Needed for Debt Risks"

Woori Bank has raised both the upper and lower limits of its 5-year fixed-rate mortgage loan interest rates by 0.11%, while Shinhan Bank plans to increase its mortgage loan interest rates by 0.05% starting from the 15th. The photo shows a Woori Bank branch in Seoul. Photo by Jinhyung Kang aymsdream@

Commercial banks have recently been raising loan interest rates one after another to curb the rapidly increasing trend of household loans. Although financial authorities say that the outstanding balance of household loans is within a manageable range, they have been ordering individual financial institutions to exercise special management through various inspection meetings since last month ahead of the implementation of the second phase of the stress Debt Service Ratio (DSR) policy in September.

In particular, since Kim Byung-hwan, the new chairman of the Financial Services Commission, took office on the 31st of last month, he has emphasized the risks of debt by prioritizing household loans in meetings held both internally and externally, so the banking sector’s movements are expected to become even more agile.

According to the financial sector on the 6th, Woori Bank has decided to raise the interest rates on housing mortgage loans, including apartment mortgages, as well as loans for row houses and multi-family houses, by an additional 0.10 to 0.40 percentage points starting from the 12th. Furthermore, it plans to increase the interest rates on two-year fixed-rate jeonse (long-term deposit) loans by 0.20 to 0.25 percentage points.

Woori Bank had already raised interest rates on housing mortgage loans and jeonse loans on the 12th and 24th of last month and again on the 2nd of this month. On the 2nd, it raised the fixed interest rate for five-year housing mortgage loans by 0.15 to 0.30 percentage points and also increased the two-year fixed interest rate on Woori Jeonse Loan by 0.10 percentage points. If the rate hike on the 12th is implemented, it will be the fourth interest rate increase in the second half of the year alone.

KB Kookmin Bank, which has the largest household loan portfolio among commercial banks, will also raise the interest rates on 'Variable and Mixed KB Housing Mortgage Loans' and 'KB General Real Estate Secured Loans' by 0.30 percentage points each starting from the 8th. KB Kookmin Bank had previously raised housing mortgage loan interest rates by 0.13 percentage points and 0.20 percentage points on the 3rd and 18th of last month, respectively, and from the 29th, it also restricted refinancing loans and housing mortgage loans for multi-homeowners. On the 2nd of this month, it raised the interest rates on jeonse loans by 0.30 percentage points.

Shinhan Bank also implemented interest rate hikes similar to those of KB Kookmin Bank. Starting from the 7th, Shinhan Bank plans to raise interest rates on housing mortgage loans and jeonse loans by up to 0.30 percentage points. The general housing mortgage loan interest rate will increase by 0.30 percentage points, and the refinancing service housing mortgage loan interest rate (based on the 5-year financial bond) will also be raised by 0.09 percentage points.

Kim Byung-hwan, the newly appointed Chairman of the Financial Services Commission, is entering the Government Seoul Office in Jongno-gu, Seoul on the 31st. Photo by Jo Yong-jun jun21@

The basis for these household loan interest rate hikes by commercial banks is the government’s order to manage the outstanding balance of household loans through various inspection meetings ahead of the implementation of the second phase of the stress DSR policy in September. The government postponed the implementation of the stress DSR second phase policy by two months due to concerns that it could negatively affect the smooth landing of real estate project financing (PF) and support measures for small business owners, which has increased the government’s burden.

In fact, at the end of July, the outstanding balance of household loans at the five major banks was 715.7383 trillion won, an increase of 7.166 trillion won in just one month. This is the largest increase in three years and three months since April 2021, when the increase was 9.2266 trillion won.

Chairman Kim has also begun external activities emphasizing the need for a comprehensive response to debt risks. On the 5th, Kim held a review meeting with macroeconomic and financial experts for the first time since his inauguration and identified household loans as the first management target among the four major financial risks.

He stated, "The fundamental reason why our financial system is vulnerable to external shocks lies in the higher debt ratio and debt dependency compared to major countries," and emphasized, "It is important to improve the debt-centered structure to restore the sustainability and dynamism of the economy." In particular, Chairman Kim reiterated his intention to accelerate policy tasks to realize his inaugural pledge to shift the financial structure from debt-centered to capital-centered.

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