Bank Loan Interest Rates Surge... Jump 0.3%P in Just 2 Weeks

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] Bank loan interest rates have surged by about 0.2 to 0.3 percentage points in just two weeks, with the pace of increase accelerating rapidly. This is because the COFIX (Cost of Funds Index), which serves as the benchmark for bank loan interest rates, is rising, and government loan regulations are tightening, prompting banks to continuously raise their loan rates.

According to the financial sector on the 22nd, as of the 17th, the variable interest rates for mortgage loans linked to the new COFIX at KB Kookmin, Shinhan, Hana, and Woori Banks ranged from 2.961% to 4.52% per annum. Compared to two weeks earlier on the 3rd (2.80% to 4.30%), this represents an increase of 0.161 and 0.22 percentage points, respectively.

The mixed (fixed) interest rates for mortgage loans, which are not variable, also rose during the same period from 2.82% to 4.441% to 3.17% to 4.67% per annum. Credit loans currently carry interest rates of 3.10% to 4.18% (grade 1, 1 year), which is more than 0.1 percentage points higher on both the upper and lower ends compared to the 3rd (3.00% to 4.05%).

The magnitude of the interest rate hikes by banks far exceeds the increase in the benchmark rate (COFIX), which reflects market interest rates and funding costs. The rise in variable mortgage loan rates at commercial banks is about three times the increase in the benchmark rate (COFIX) of 0.07 percentage points.

According to the Korea Financial Investment Association’s Bond Information Center, the 5-year bank bond (AAA, unsecured), which is most commonly used for fixed mortgage loan rates, rose from 1.939% on the 3rd of this month to 2.029% on the 17th, an increase of 0.09 percentage points in two weeks.

During this period, the actual increase in the lower end of fixed mortgage loan rates at the four major banks reached 0.35 percentage points, nearly four times higher. This means that recently, banks have either raised the additional margin they add to the benchmark rate based on their own judgment or reduced preferential rates given for transaction performance.

As financial authorities strongly pressure to "tighten household loans" due to concerns about capital inflow into the real estate market, banks explain that raising the additional margin and reducing preferential rates are inevitable measures to manage the total loan volume.