The Interest Rate Spread Between Bank Deposits and Loans Has Widened

Average Loan-Deposit Interest Rate Spread of 17 Banks at 1.73%
Up 0.1 Percentage Points from 1.63% Last Month
Due to Authorities' Guidelines Leading to Sharp Deposit Rate Cuts

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 Hyunmin Kim kimhyun81@

[Asia Economy Reporter Sim Nayoung] The interest rate spread between deposits and loans at major banks widened in December last year compared to the previous month. Although financial authorities have warned banks not to engage in excessive interest margin practices, since the authorities instructed banks not to compete by raising deposit rates, banks have lowered deposit rates more than loan rates.

According to the Bankers Association disclosure on the 20th, the average household interest rate spread among 17 domestic banks excluding the Industrial Bank of Korea and Korea Citibank was 1.73% (excluding policy-based low-income finance). This is an increase of 0.1 percentage points from 1.63% in the previous month. Among the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), Nonghyup Bank had the highest interest rate spread at 0.94 percentage points. Hana Bank and Kookmin Bank also saw their interest rate spreads increase by 0.69 and 0.61 percentage points, respectively, compared to the previous month.

The main reason for the increase in the interest rate spread is the rapid decline in deposit rates since November last year. Deposit rates, which were over 5% in November last year, fell to the 4% range in December after financial authorities instructed banks not to raise deposit rates further. This month, the major fixed deposit rates at the five major banks dropped to the 3% range.

Recently, financial authorities have also been encouraging a reduction in loan rates. Lee Bok-hyun, Governor of the Financial Supervisory Service, stated, "We will continuously inspect and monitor banks' interest rate calculation and operation practices" (at the executive meeting on the 10th), and added, "More meticulous management and support from the banking sector are necessary to prevent citizens struggling with rapid interest rate hikes from falling into delinquency and insolvency" (at the bank presidents' meeting on the 18th).

Accordingly, from the 20th, NH Nonghyup Bank's variable interest rates dropped to 5.18?6.28%. Just a day before, they were 5.98?7.08%, marking a 0.8 percentage point decrease. A representative from NH Nonghyup Bank stated, "We decided to lower rates by 0.8% as a preferential rate, but it is applied uniformly to all customers without any separate conditions."

On the same day, Woori Bank also lowered its variable mortgage loan rates by 0.4 percentage points to 5.96?6.96%. Until the previous day, rates were 6.36?7.36%, so this was a downward adjustment within a day. Woori Bank had already reduced the additional interest rates on mortgage and jeonse loans on the 13th and implemented further reductions within a week.

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