"Interest Rates Vary Greatly by Bank"…Up to 1.7%P Gap in Jeonse Loan Rates (Comprehensive)

Average Interest Rate of 18 Banks at 2.5%
Jeonbuk Bank Tops at 3.42% per Year
Experts Say "Calculation Process Must Be Disclosed"

[Asia Economy Reporters Kwangho Lee, Seungseop Song] It has been revealed that the average (effective) interest rates on jeonse loans guaranteed by the government vary by up to 1.7 percentage points depending on the bank. In particular, the gap was significantly large among regional banks, with Jeonbuk Bank having the highest loan interest rate.

According to the "Status of Effective Interest Rates on Jeonse Loans by Domestic Banks" submitted by the Financial Supervisory Service to Yoon Doo-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, as of February, the average interest rate on jeonse loans from 18 domestic banks was recorded at 2.50% per annum.

The effective interest rate refers to the actual interest rate applied to the loan after preferential rates are applied by the bank. It is calculated as a weighted average of the interest rates actually applied to borrowers, weighted by the loan amount.

Regional banks had notably higher jeonse loan interest rates. Jeonbuk Bank set the highest rate at 3.42% per annum. Jeju Bank (2.85%), Suhyup Bank (2.76%), and Daegu Bank (2.61%) also had relatively high rates. In contrast, Gwangju Bank had the lowest rate among all banks at 1.72%, creating a stark contrast. Among the five major banks most sought by loan applicants?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?Kookmin Bank had the lowest rate at 2.37%, while Nonghyup Bank's rate was higher at 2.58%.

Most jeonse loans are guaranteed by the Korea Housing Finance Corporation and the Housing and Urban Guarantee Corporation. However, the corporations stated that the final interest rate decision is made independently by each bank, so they do not intervene. A representative from the Housing and Urban Guarantee Corporation explained, "Jeonse loans are products created through the corporation's guarantee, but we do not intervene in the differences in market interest rates among banks."

Experts: "Despite Guarantees, Interest Rate Differences Are Large... Need to Promote Competition"

Experts point out that it is excessive to apply interest rates that differ by nearly 50% even though these are guaranteed loans where banks bear almost no risk.

Professor Yang Jun-mo of Yonsei University's Department of Economics said, "Each bank may be in different circumstances," but added, "The difference is large considering the loans are guaranteed." As an alternative, he suggested disclosing the specific process of interest rate calculation. Professor Yang urged, "In foreign countries, it is possible to know exactly how interest rates were determined. Measures to promote competition should be established so that consumers can easily verify and choose."

Professor Lee Byung-tae of KAIST's Department of Economics also said, "In the United States, there is a system where each bank competes to offer the optimal interest rate to consumers," and explained, "In Korea, consumers have to visit banks one by one for consultations, which is cumbersome, and they are unaware that better conditions exist." He emphasized, "It is also a method for financial authorities to guide consumers to obtain loans under the best conditions and to promote related services."

Banks maintain that various factors must be considered. A representative from a commercial bank said, "Jeonse loans differ by bank in terms of the additional interest rate items and levels, as well as borrower evaluation methods," adding, "Since there are few new loan applicants, there may be an optical illusion due to insufficient samples." Another bank official said, "It is not easy to provide jeonse loans at an average rate in the 1% range," and suggested, "It is possible that people with high or low credit scores have concentrated in certain banks."

Assemblyman Yoon advised, "The interest burden varies greatly depending on the bank chosen, so borrowers should carefully review details before deciding."

Meanwhile, as of February, the effective interest rate on mortgage loans from 18 domestic banks was recorded at 2.66%. The difference between banks was up to 0.57 percentage points.

Higher rates were centered among regional banks such as Jeonbuk Bank (3.10%), Jeju Bank (2.91%), Gwangju Bank (2.74%), Gyeongnam Bank (2.67%), and Daegu Bank (2.63%). Among the five major banks, Shinhan Bank had the highest rate at 2.58%, followed by Hana Bank (2.54%), and Kookmin, Woori, and Nonghyup Banks (each 2.53%).