Average Interest Rate on Bank Household Loans at 4.14%... Highest in 8 Years and 4 Months

Lee Chang-yong, Governor of the Bank of Korea, holds a briefing session on the status of inflation targeting operations at the Bank of Korea press room in Jung-gu, Seoul on the 21st. Photo by Moon Ho-nam munonam@

Due to the impact of the base interest rate hike, the household loan interest rate in May recorded 4.14%, reaching the highest level in 8 years and 4 months.

According to the "Weighted Average Interest Rate of Financial Institutions" announced by the Bank of Korea on the 30th, the household loan interest rate (weighted average, based on new contracts) of deposit banks last month was 4.14% per annum, up 0.09 percentage points from the previous month.

This is the highest level in 8 years and 4 months since January 2014 (4.15%). The household loan interest rate fell to an all-time low of 2.55% per annum in August 2020, then continued to rise, reaching the 4% range in April.

Among household loans, the mortgage loan interest rate remained unchanged at 3.90%, but the general credit loan interest rate rose by 0.16 percentage points from 5.62% to 5.78% in one month. This credit loan interest rate is the highest point in 8 years and 4 months since January 2014 (5.85%).

The proportion of fixed interest rates among new household loans by deposit banks last month was 17.4%, down 1.8 percentage points from April (19.2%). The Bank of Korea explained that the reduction in the fixed interest rate proportion is because "due to future uncertainties, fixed interest rates are generally higher than variable interest rates, but recently the gap has not narrowed."

The corporate loan interest rate rose by 0.15 percentage points from 3.45% in April to 3.60% per annum. This is the highest level in 3 years since May 2019 (3.67%). The large corporation loan interest rate increased by 0.18 percentage points to 3.35%, and the small and medium-sized enterprise loan interest rate rose by 0.12 percentage points to 3.79%.

The average overall loan interest rate (weighted average, based on new contracts) of deposit banks, reflecting both corporate and household loan interest rates, was 3.68%, up 0.11 percentage points from April (3.57%).

The average interest rate on savings deposits of deposit banks rose by 0.15 percentage points from 1.87% to 2.02% per annum. This is the highest level in 3 years and 5 months since December 2018 (2.05%).

The loan-deposit margin, which means the difference between the loan interest rate and the savings deposit interest rate based on new contracts of deposit banks, narrowed by 0.04 percentage points to 1.66 percentage points from April (1.70%). On a balance basis rather than new contracts, the loan-deposit margin (2.37 percentage points) actually expanded by 0.02 percentage points. This is the largest increase in 7 years and 7 months since October 2014 (2.39 percentage points).