"The Leading Digit of Interest Rates Dropped"... Loan Interest Rates Reduced Before and After Seol

Interest Rate Cuts on Home Loans by NH Nonghyup and Woori on the 20th
KB Kookmin Plans to Lower Rates on the 26th
K Bank Also Joins Rate Cut on the 17th

As the U.S. central bank, the Federal Reserve (Fed), hinted at additional interest rate hikes, attention is increasing on whether the Bank of Korea's Monetary Policy Committee will raise rates at its meeting scheduled for the 25th. The photo shows a loan counter at a commercial bank in downtown Seoul on the 19th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Sim Nayoung] Banks are lowering loan interest rates around the Lunar New Year holiday. This includes all products such as mortgage loans, jeonse (long-term deposit) loans, and unsecured loans. The reduction range is around 1 percentage point, changing the leading digit of loan interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup). The variable mortgage loan interest rates, which had risen to 8% at the beginning of the new year, have dropped to 6% at all five major banks.

How much have loan interest rates dropped?

On the 20th, NH Nonghyup Bank's variable interest rate fell to 5.18~6.28%. Just the day before, it was 5.98~7.08%, a decrease of 0.8 percentage points. A NH Nonghyup Bank official stated, "We decided to lower the preferential interest rate by 0.8%, but it is uniformly applied to all customers without any separate conditions."

On the same day, Woori Bank also lowered its mortgage loan variable interest rate by 0.4 percentage points to 5.96~6.96%. Until the previous day, it was 6.36~7.36%, so it was adjusted downward in just one day. Woori Bank had already reduced the additional interest rates on mortgage and jeonse loans on the 13th, and took further reduction measures within a week.

KB Kookmin Bank will lower interest rates starting from the 26th, right after the Lunar New Year holiday. The variable mortgage loan interest rate will be reduced by up to 1.05 percentage points based on the new COFIX standard, and the variable mortgage loan interest rate will be lowered by up to 1.05 percentage points based on the new COFIX and up to 0.75 percentage points based on the outstanding balance COFIX.

Internet banks have also joined this trend. K Bank lowered the interest rates on unsecured loan products by up to 0.7 percentage points depending on credit rating on the 17th, reducing the lowest interest rate for new unsecured loans from 5.62% per annum to 4.92% per annum. The lowest interest rate for overdraft accounts also dropped from 6.13% per annum to 5.43% per annum.

Why are loan interest rates being lowered?

The banking sector's decision to lower loan interest rates was largely influenced by pressure from financial authorities. Lee Bok-hyun, Governor of the Financial Supervisory Service, has been repeatedly issuing warnings to banks. "More meticulous management and support from the banking sector are necessary to prevent citizens struggling due to rapid interest rate hikes from falling into delinquency and insolvency." (Bank CEOs meeting held on the 18th) "We will continuously inspect and monitor the banks' interest rate calculation and operation practices." (Executive meeting on the 10th) A representative from a commercial bank said, "Loan interest rate reduction measures have been following the meeting between the Financial Supervisory Service Governor and bank CEOs."

Market interest rates, which influence loan interest rate calculations, are also stabilizing downward. The AAA-rated 1-year corporate bond yield was 3.774% as of the 19th. It had surged to 5% in November last year but is now declining. The COFIX (Cost of Funds Index) based on new transactions, announced on the 16th (December last year), was 4.29%, 0.05 percentage points lower than the previous month (4.34%), influencing the reduction of mortgage loan interest rates.

COFIX is the weighted average interest rate of funds raised by eight domestic banks. When the interest rates on banks' funding sources such as deposits and bank bonds rise, COFIX rises, and loan interest rates also increase accordingly. Most banks base their mortgage loan interest rates on COFIX.