"Bank Raises Deposit Rates and Lowers Loan Rates Amid Interest Business Warnings"

Loan-Deposit Interest Rate Spread Widens Most in 7 Years and 7 Months
Banks Feel Burden of Public Opinion Backlash

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] In response to warnings from the political sphere and financial authorities about 'interest profiteering,' commercial banks are continuously lowering loan interest rates while raising interest rates on fixed-term savings and installment savings products to 3-5% through special promotions. As the interest rate spread, which refers to the difference between loan interest rates and deposit interest rates, has widened at the largest scale in 7 years and 7 months, public opinion has worsened, causing banks to feel the pressure and take such measures.

According to the financial sector on the 3rd, Shinhan Bank plans to lower the interest rates on newly issued mortgage loans and jeonse (key money deposit) loans by up to 0.35 percentage points (p) and 0.30 p, respectively, starting as early as this week (June 4-8).

The 'vulnerable borrower program' is also scheduled to begin early this month. First, for borrowers using mortgage loans with interest rates exceeding 5% as of the end of June, their rates will be uniformly reduced to 5% annually for one year, and the bank will cover the portion exceeding 5%.

For borrowers applying for capped-rate mortgage loans (products that limit the annual interest rate increase to within 0.75 percentage points), Shinhan Bank will cover the additional 0.2%p interest that customers would normally bear for one year.

For jeonse loan borrowers who meet the conditions of 'annual income below 40 million KRW and jeonse deposit below 300 million KRW,' a jeonse loan product based on the 2-year financial bond rate will be introduced. Jeonse loans are typically variable-rate products with 6-month or 1-year terms, but this effectively offers a 2-year fixed-rate product to reduce the risk of interest rate hikes. Additionally, Shinhan Bank plans to lower the new interest rate on the representative financial product supporting low-income households, the 'Saehimang Holssi' loan, by 0.5%p annually.

NH Nonghyup Bank lowered interest rates on housing-related loans such as mortgage and jeonse loans by 0.1-0.2%p starting June 1 through expanded preferential rates.

Woori Bank also extended the 1.3%p preferential rate (applied to fixed-rate loans based on 5-year bank bonds for borrowers with the bank's internal credit rating within grade 7) to all grades (including grades 8-10) starting May 24. This effectively lowered the additional interest rate by 1.5%p across all Woori Bank credit grades. K Bank also reduced loan interest rates by up to 0.41 percentage points on May 22.

Meanwhile, banks' deposit interest rates are rising. On June 1, Shinhan Bank launched special promotion products 'Shinhan 40th Anniversary Festa Installment Savings' and 'Shinhan S Dream Fixed Deposit' to celebrate its 40th anniversary. The Festa installment savings, limited to 100,000 accounts, is a 10-month flexible installment savings with weekly deposits, allowing up to 300,000 KRW per month, with a maximum interest rate of 4.0% annually.

NH Nonghyup is also set to launch a new fixed deposit product with an interest rate in the 3% range, including a 0.4%p preferential rate, around June 11.

Woori Bank released the '2022 Woori Special Fixed Deposit' with a maximum interest rate of 3.20% and a limit of 2 trillion KRW on May 22, which sold out in 6 days. On May 28, the limit was doubled to 1.2 trillion KRW. However, as of June 1, only 143.7 billion KRW remains, and the second sell-out is imminent.

The 'CodeK Flexible Installment Savings' with a 5.0% annual interest rate launched by K Bank on May 17, limited to 100,000 accounts, was fully subscribed within 10 days. Thanks to the two special promotions offering 5% interest rates in June, deposits increased by 850 billion KRW in one month, and K Bank plans to launch special promotion products again in July.