As interest rates on deposits at major banks have risen sharply in recent years, interest in bank deposits and savings accounts, which have been neglected in the past, is reviving. But the borrowers who see this are disturbed. This is because the increase in interest rates on deposits and savings accounts leads to a ‘domino increase’ in lending rates through the rise of the cost of financing index (COFIX) of banks.
According to the banking industry on the 21st, the five major banks, including Kookmin, Shinhan, Woori, Hana, and Nonghyup, all raised interest rates on deposits and savings accounts by 0.3 to 0.4 percentage points this week. This is because the Bank of Korea raised the base interest rate by 0.25 percentage points to 1.25% a year on the 14th. Banks also raised the deposit interest rate by up to 0.4 percentage points as soon as the BOK raised the base rate at the end of November last year.
As a result, the weighted average interest rate for time deposits in the banking sector (based on the new transaction amount) rose by 0.23 percentage points in one month to 1.51% per annum in November last year. Considering the subsequent base rate hike and bank deposit rate hike, the average interest rate for time deposits at banks is expected to reach 2% per annum in the near future. This is good news for the elderly who live on deposit interest after retirement or for depositors who want to keep their extra money in a stable bank.
The problem is that when the deposit interest rate rises, the interest rates on major loans such as variable mortgage loans and jeonse loans also soar. In the link, there is a cofix, which is used as the base rate of the loan. Copix is an index that measures the cost of a bank to raise funds for a loan. Cofix is calculated by averaging the interest rates of time deposits and financial bonds of eight large domestic banks, and deposits account for the overwhelming majority of them. This is why, when the deposit interest rate rises, the COfix and the loan interest rate rise sequentially.
The actual new handling amount Cofix follows the bank’s savings-type deposit rate with a lag of one or two months. Shortly after the BOK raised the base rate at the end of November last year, as banks raised interest rates on deposits and savings accounts by up to 0.4 percentage points, the new Cofix also rose by 0.4 percentage points from November to December. This has led to an increase in the variable rate of main loans and the interest rate on jeonse loans at major banks.
If the BOK’s further increase in the base rate on the 14th and the resulting increase in the bank’s receiving rate are reflected in next month’s Cofix, the loan interest rate is expected to rise again. An official from the financial industry pointed out, “Banks are conscious of the criticism of the widening of the loan-to-deposit interest rate gap, and are raising the deposit interest rate quickly, but this in turn leads to an increase in the loan rate, which only increases the burden on borrowers.”
In addition, some banks have blocked the sale of loans linked to the ‘balance-based Cofix’, which has a relatively small increase in interest rates, under the pretext of regulation on the total amount of household loans. This means that borrowers have no choice other than a new Cofix-linked product, which has a faster rate of interest rate rise. Since the balance-based COfix is calculated including deposit funds and frequent deposits, which banks have treated as low interest rates in the past, the rate of reflection of market interest rates is slow. A bank official said, “If demand for a loan with a low interest rate increases, the total amount management will be disrupted and product handling will be limited,” said a bank official. .
Reporter Bin Nan-sae binthere@hankyung.com
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