Due to the Increase in Bank Spread Rates... Mortgage Loan Interest Rates Rise for Four Consecutive Months

Bank of Korea's 'November Weighted Average Interest Rate of Financial Institutions'
Loan-Deposit Interest Rate Spread Expands for 3rd Consecutive Month
"Impact of Increased Additional Interest Rate Likely to Decrease from December"

The weighted average interest rate on housing mortgage loans (HML) has been rising for four consecutive months as the increase in banks' additional interest rates affected the market with a time lag. In December, loan interest rates are expected to decline as the impact of the banks' additional interest rate hikes diminishes.

According to the "November Financial Institution Weighted Average Interest Rate" announced by the Bank of Korea on the 27th, the loan interest rate (based on new contracts) of deposit banks last month was 4.76% per annum, up 0.09 percentage points from the previous month. The loan interest rate has been on the rise for three consecutive months since September (4.62%).

Household loan interest rates increased by 0.24 percentage points, mainly in housing mortgage loans and general unsecured loans. This reflects the delayed effect of banks raising additional interest rates to manage their loan portfolios. The HML interest rate rose by 0.25 percentage points to 4.30%, and the general unsecured loan interest rate increased by 0.31 percentage points to 6.17% compared to the previous month. The HML interest rate has been rising for four consecutive months since August (3.51%).

Kim Min-seok, head of the Financial Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "The increase in banks' additional interest rates, which took place between July and October, affected the rise in loan interest rates with a time lag until November. We expect the impact of additional interest rate hikes to be minimal starting in December."

He added, "The fixed-rate HML is likely to decline in December as the benchmark interest rate for bank bonds with a 5-year maturity has fallen significantly since the beginning of December. It seems that the environment will be favorable for lowering loan interest rates at the beginning of the year."

Corporate loan interest rates also rose by 0.09 percentage points to 4.76%, marking an increase after a month. While large corporations saw a decrease of 0.05 percentage points, small and medium-sized enterprises experienced a 0.13 percentage point increase due to the expiration of the effects of some banks' low-interest loans from the previous month.

On the other hand, the interest rate on savings deposits (based on new contracts) fell by 0.02 percentage points to 3.35% compared to the previous month. The pure savings deposit interest rate decreased by 0.01 percentage points to 3.36%, mainly due to a 0.01 percentage point drop in time deposits, while market-type financial products' interest rates declined by 0.03 percentage points to 3.31%, driven by decreases in financial bonds (-0.01 percentage points) and CDs (-0.10 percentage points).

The interest rate spread between loans and savings deposits (loan interest rate minus savings deposit interest rate) has been widening for three consecutive months since September (1.22 percentage points). Last month, the spread expanded by 0.11 percentage points from the previous month to 1.41 percentage points.