"Bank Deposit Interest Rates Rise, Loan Interest Rates Also Increase"

Impact of Bank of Korea Base Rate Hike
Shinhan Bank Leads Commercial Banks in Raising Deposit Rates
Loan Rates Also Rising, Mortgage Rates Expected to Soon Exceed 7%

[Asia Economy Reporter Sim Nayoung] As the Bank of Korea raises the base interest rate, banks' deposit interest rates are expected to rise, followed by a chain increase in loan interest rates. Shinhan Bank will raise the interest rates on 36 types of time deposits and installment savings by up to 0.4 percentage points starting from the 18th. This is a measure in response to the Bank of Korea's base rate hike.

With this interest rate increase, the ESG (Environmental, Social, and Governance) product "Areumdaun Yonggi Time Deposit" will see its interest rate raised by 0.4 percentage points to a maximum of 2.2%. The 1-year maturity Al.Ssol installment savings, which allows deposits up to 3 million KRW per month, will be increased to a maximum of 3.0%. Also, the Shinhan S Dream installment savings, which offers various terms from 1 to 60 months, will have its maximum interest rate increased by up to 0.3 percentage points depending on the term.

A Shinhan Bank official stated, "In line with the recent rise in market interest rates and the Bank of Korea's base rate hike, the interest rates applied to customer deposits and savings have also been rapidly increased." Other banks such as Kookmin, Hana, Woori, and NongHyup Bank are also expected to raise deposit interest rates soon.

It is only a matter of time before mortgage loan interest rates exceed 7% per annum. As of the 14th, the mixed-rate mortgage loan interest rates (switching to variable rate after 5 years) at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH NongHyup) ranged from 3.90% to 6.45%. The pace of increase is accelerating. The mixed-rate mortgage loan interest rate took five months to rise from 5% in October last year to the 6% range, but after surpassing 6% for the first time in 11 years at the end of last month, it surged to the mid-6% range within just half a month.

The sharp rise in interest rates is due to bond yields fluctuating as the base interest rate rises. Banks raise funds for loans by issuing bank bonds and accepting deposits. For example, mixed-rate loans are lent to consumers using funds raised by issuing 5-year bank bonds. The benchmark interest rate for mixed-rate loans, the 5-year bank bond yield, was 3.444% as of the previous day, having surpassed 3% for the first time in 8 years at the end of March, and then reached the mid-3% range within half a month.

On this day, the variable mortgage loan interest rates at the five major banks were recorded at 3.18% to 5.30%. This is 0.85 to 1.36 percentage points higher than a year ago at the end of April last year (2.33% to 3.94%). Variable rates use the COFIX, which follows the base interest rate, as the benchmark. The COFIX based on new contracts last month was 1.70%, up 0.06 percentage points from the previous month.

A bank official said, "Mortgage loan interest rates could soon reach 7%," adding, "Although mixed-rate loans currently have slightly higher rates than fixed-rate loans, the vulnerability of variable rates increases during a rising interest rate period, so the burden on those who borrowed money with variable rates to buy homes will grow over time." The credit loan interest rates at the five major banks also rose significantly to 3.34% to 5.18%, compared to 2.02% to 4.52% a year ago.

Meanwhile, due to the rise in interest rates, loan regulations, and sluggish real estate transactions, household loans in the banking sector have declined for four consecutive months for the first time since statistics began. According to the Bank of Korea's "Financial Market Trends," as of the end of March this year, the outstanding household loans at banks stood at 1,059 trillion KRW, down 1 trillion KRW from the end of February.