"Mortgage Rates Nearing 7%... Banks Raise Deposit Rates to Prevent Massive Outflows to Stock Market [1mm Finance Talk]"

Loan-to-Deposit Spread Narrows for Four Straight Months, but Borrowers Still Feel the Pinch
Average Spread at Major Banks Stands at 1.28% in December
Three Out of Five Banks See Spreads Widen; Burden Grows on Outstanding Balances
Lending Rates Likely to Rise in the First Half... "Narrowing the Spread Won't Be Easy"

The average loan-to-deposit interest rate spread (the difference between lending and deposit interest rates) at major commercial banks has narrowed for four consecutive months since September of last year. While lending rates remained unchanged, banks raised new deposit rates to attract more funds. However, unlike the average figures, some banks actually saw their loan-to-deposit spreads widen, and the spread based on outstanding balances also expanded, meaning that financial consumers continued to feel the impact of high interest rates. Since the beginning of this year, lending rates have been rising, leading to forecasts that the loan-to-deposit spread is likely to widen again.

Yonhap News

According to the Korea Federation of Banks on January 29, the average loan-to-deposit spread for new transactions at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at 1.28 percentage points in December 2025. This represents a decrease of 0.02 percentage points from the previous month. The household loan-to-deposit spread (excluding policy-based financial products for low-income households) also fell by 0.088 percentage points to an average of 1.262 percentage points over the same period, marking four straight months of decline. The difference in spreads among individual banks was as much as 0.19 percentage points.

The narrowing of the loan-to-deposit spread is attributed to commercial banks raising new deposit rates at the end of the year to secure funds and prevent capital outflows to the stock market, as well as some banks applying preferential rates to loans. As of December 2025, the average interest rate for one-year time deposits rose by 0.108 percentage points from the previous month to 2.908%, while the average household loan rate remained unchanged at 4.166% during the same period.

Interest Burden on Borrowers Is Growing... Mortgage Rates Nearing 7%

Paradoxically, despite the narrowing average loan-to-deposit spread, the interest burden on borrowers is actually increasing. Three of the five major commercial banks (Shinhan, Woori, and Kookmin) saw their new loan-to-deposit spreads widen in December compared to the previous month.

Shinhan Bank's spread rose from 1.22 to 1.38 percentage points, Woori Bank's from 1.18 to 1.22 percentage points, and Kookmin Bank's from 1.16 to 1.27 percentage points. While the average spread across the five major banks narrowed, the fact that many banks saw their spreads increase illustrates the "fallacy of averages." Furthermore, the spread based on outstanding balances and the household loan-to-deposit spread (excluding policy-based products) both widened by up to 0.06 percentage points compared to the previous month, increasing the burden on existing borrowers.

As of January 28, 2026, the fixed-rate (mixed and periodic types) five-year mortgage loan rates at the five major commercial banks ranged from 3.97% to 6.7% per annum. The upper end of the range has exceeded 6% for less than two months and is now approaching the 7% threshold. Corporate loan rates also rose by 0.06 percentage points from the previous month to 4.16% per annum.

Expectations for Rate Cuts Fade, K-Shaped Polarization Intensifies... Interest Rate 'Cold Snap' to Hit Hard in the First Half

There are forecasts that borrowers' interest burdens will increase in the first half of this year. This is because commercial banks are raising lending rates and expanding their loan-to-deposit spreads, while the Bank of Korea's rate-cutting cycle has ended and the government's loan regulation stance is expected to continue throughout the first half.

An industry insider commented, "Not only global economic trends and interest rate policies, but also the entrenchment of 'K-shaped growth,' where gaps between industries and social classes widen, are slowing economic recovery and increasing the number of high-risk borrowers." The insider added, "Given the need for risk management, there is a strong likelihood that banks will raise credit spreads, especially for small and medium-sized enterprises and household loans, making it difficult for banks to narrow the loan-to-deposit spread."