Low Deposit Rates & Loans: 2-Year Interest Rate Cap
- The difference between bank loan interest rates and deposit rates in South Korea has reached its highest level in two years, as the decline in benchmark interest rates...
- As of March, the average interest rate spread for 19 domestic banks in South Korea was estimated at 2.00 percentage points, excluding policy-related financing, according to data released...
- In March,the average household interest rate difference among the five major banks – KB Kookmin,Shinhan,Hana,Woori,and NH Agricultural Cooperatives – was 1.47 percentage points.
Bank Loan-Deposit Rate Gap Widens to Two-Year High
The difference between bank loan interest rates and deposit rates in South Korea has reached its highest level in two years, as the decline in benchmark interest rates slows while loan rate decreases lag behind.
Margin Reaches 2.00% at Domestic Banks
As of March, the average interest rate spread for 19 domestic banks in South Korea was estimated at 2.00 percentage points, excluding policy-related financing, according to data released by the Korea Federation of Banks on Tuesday. This marks the first time the household interest rate difference has reached 2% since February 2023,when it stood at 2.21 percentage points.
Shinhan,Hana Bank Record Largest Spreads Since 2022
In March,the average household interest rate difference among the five major banks – KB Kookmin,Shinhan,Hana,Woori,and NH Agricultural Cooperatives – was 1.47 percentage points. shinhan Bank recorded a spread of 1.51 percentage points, while Hana Bank’s was 1.43 percentage points, the highest figures as public announcements began in July 2022. IM Bank (formerly DGB Daegu Bank) saw a slight decrease from 1.23 percentage points in february to 1.21 percentage points in March.
lending Restrictions and Household Loan growth Contribute to Widening Gap
The average household interest rate difference between banks has been widening for eight consecutive months as August of last year, when it stood at 1.30 percentage points. Increased housing transactions and soaring mortgage loans last year prompted financial authorities to implement measures to curb lending, leading banks to raise interest rates.
Banks Cautious About Lowering Loan rates
Industry experts suggest banks are hesitant to lower loan rates this year due to concerns that household loan expansion has not been fully contained. Deposit rates, conversely, have been declining rapidly since October of last year. IBK Industrial Bank of Korea recently lowered interest rates on 26 deposit products by 0.10 to 0.50 percentage points, while Woori Bank also reduced deposit and savings rates by 0.10 to 0.25 percentage points.
Concerns Over Regulatory Response
According to an unnamed bank official, there is reluctance to lower loan rates as household loan growth, which had slowed, is showing signs of increasing again in March. “there is concern about the response from financial authorities and the overall lending trend,” the official stated.
Bank Loan-Deposit Rate Gap Widens to Two-Year High: Q&A
What is the main issue discussed in the article?
The article discusses the widening gap, or spread, between bank loan interest rates and deposit rates in South Korea.This spread has reached its highest point in two years.
What is the current interest rate spread?
As of March, the average interest rate spread for 19 domestic banks in South Korea was 2.00 percentage points. This excludes policy-related financing.
When was the last time the spread was this high?
The last time the household interest rate difference reached 2% was in february 2023, when it stood at 2.21 percentage points.
Which banks have the largest interest rate spreads?
Shinhan Bank recorded a spread of 1.51 percentage points in March, and Hana Bank had a spread of 1.43 percentage points. These were the highest figures sence public announcements began in July 2022.
How has the spread changed over time?
The average household interest rate difference has been widening for eight consecutive months, starting from august of the previous year, when it was at 1.30 percentage points.
What factors are contributing to the widening gap?
Increased housing transactions and soaring mortgage loans last year prompted financial authorities to implement measures to curb lending. this led banks to raise interest rates. The slowing of benchmark interest rate declines while loan rate decreases lag behind also plays a role.
Why are banks hesitant to lower loan rates?
Industry experts suggest banks are hesitant to lower loan rates as of concerns that household loan expansion has not been fully contained.
are deposit rates also changing?
Yes, deposit rates have been declining rapidly as October of the previous year.
Can you provide examples of banks lowering deposit rates?
IBK Industrial Bank of Korea recently lowered interest rates on 26 deposit products by 0.10 to 0.50 percentage points.
Woori Bank also reduced deposit and savings rates by 0.10 to 0.25 percentage points.
Why might banks be concerned about the future?
An unnamed bank official expressed concern about the response from financial authorities and the overall lending trend because household loan growth,which had slowed,is showing signs of increasing again.
summary of Key Data
| Bank | March Interest Rate Spread (Percentage Points) | Notes |
| :——————- | :———————————————– | :————————————————————————————————————————————————————————————————————————————————— |
| 19 Domestic Banks | 2.00 | Average, excluding policy-related financing. |
| KB Kookmin, Shinhan, Hana, Woori, NH Agricultural Cooperatives (Average) | 1.47 | Average of the five major banks. |
| Shinhan Bank | 1.51 | Highest among the five major banks in March.|
| Hana Bank | 1.43 | Higher than other major banks in March, levels not seen since public announcements in july 2022. |
| IM Bank | 1.21 | Slight decrease from 1.23 in February.|