Falling Bank Deposit Rates, Soaring Loan Interest Rates

Following the Bank of Korea's base rate cut, major commercial banks that had been cautious are now widely lowering their deposit interest rates. On the other hand, loan interest rates continue to soar due to government household loan management measures.

Yonhap News

According to the financial sector on the 14th, the fixed (hybrid) mortgage loan interest rates of the five major domestic commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) were recorded at 3.70?6.10% as of the previous day. This is similar to the level on the day the Bank of Korea cut the base rate last month on the 11th (3.71?6.15%).

During the same period, the 5-year bank bond rate, which serves as the benchmark rate for fixed-rate mortgage loans in the banking sector, showed a slight decline from 3.319% to 3.243% (as of the 12th), but actual bank loan interest rates have not reflected this change.

Meanwhile, the commercial banks that had been cautious are gradually starting to lower their deposit interest rates. Among the five major banks, KB Kookmin Bank was the last to act, lowering interest rates on 10 types of deposits and 12 types of installment savings by 0.10?0.25 percentage points as of the previous day.

Earlier, Woori Bank and Nonghyup Bank lowered deposit product interest rates by 0.2 percentage points and 0.25?0.55 percentage points respectively on the 23rd of last month, followed by Hana Bank lowering rates by 0.05?0.25 percentage points on the 1st of last month, and Shinhan Bank lowering rates by 0.05?0.30 percentage points on the 8th.

As a result, the main deposit products of commercial banks have fallen to the low 3% range. As of the previous day, KB Kookmin Bank’s representative deposit product, 'KB Star Time Deposit,' had a basic interest rate of 2.50% and a maximum interest rate of 3.35% for a 1-year term. Shinhan Bank’s representative product, 'Sol Pyeonhan Time Deposit,' also showed a basic interest rate of 2.60% and a maximum interest rate of 3.35%.

For banks, the need to secure funds through deposits has significantly decreased as loan growth is restricted due to the government’s household debt management. A representative from a commercial bank said, "In a situation where loan expansion is limited, relatively high deposit interest rates can lead to an increased burden on loan customers."

Accordingly, the interest rate spread between loans and deposits is also widening. According to the Korea Federation of Banks, the household loan-deposit interest rate spread excluding policy low-income financial products among the five major commercial banks was 0.41?0.68% in June but rose to 0.43?1.05% in September, showing increases at both the upper and lower ends.