Should I take out a loan? Why has the average bank loan interest rate fallen for 9 consecutive months?

The average interest rate on bank mortgage loans has been falling for nine consecutive months. In particular, as benchmark interest rates such as KOPIX have fallen across the board, the average interest rates on bank loans and deposits have both fallen last month.

The impact of the reduction in the loan premium rate at commercial banks, which began in mid-to-late July due to pressure from financial authorities to manage household loans, is expected to appear in earnest in the Bank of Korea’s statistics from August.

According to the ‘Weighted Average Interest Rates of Financial Institutions’ statistics released by the Bank of Korea on the 30th, the savings deposit interest rate (based on new transaction amount) at deposit banks in July was 3.41% per annum, down 0.10 percentage points (p) from June (3.51%).

The interest rate on pure savings deposits such as time deposits (3.41%) fell by 0.09%p, and the interest rate on market-type financial products such as financial bonds and transferable certificates of deposit (CD) (3.41%) also fell by 0.17%p.

The lending rate of deposit banks (4.55%) also fell by 0.16%p, continuing its downward trend for the second consecutive month.

Specifically, the corporate loan interest rate (4.78%) fell by 0.10%p. The interest rate for large corporations (4.89%) fell by 0.11%p, and the interest rate for small and medium-sized enterprises (4.69%) fell by 0.10%p.

The household loan interest rate (4.06%) also fell by 0.20%p. It is the second consecutive month of decline and the lowest record in 2 years and 2 months since April 2022 (4.05%).

Housing mortgage loans (3.50%) and general credit loans (5.78%) fell by 0.21%p and 0.26%p, respectively. In particular, housing mortgage loan interest rates fell for nine months, reaching the lowest level in 2 years and 9 months since October 2021 (3.26%).

Kim Min-soo, head of the Bank of Korea’s financial statistics team, explained the reason for the decline in deposit and loan interest rates as “because benchmark interest rates such as bank bonds have fallen.”

Regarding the impact of the increase in the bank loan premium rate, he answered, “Since the banks’ premium rate hikes began in earnest in late July, this impact will be reflected in August,” and “Since the benchmark interest rate for housing mortgage loans, such as 5-year bank bonds, is falling in August as well, we will have to wait and see what will ultimately happen (mixed with the premium rate hike) (in terms of the interest rate direction).”

The proportion of fixed-rate household loans (based on new loans) increased by 8.3%p from 64.2% to 72.5%. The Bank of Korea explains that this is because the handling of fixed-rate housing mortgage loans has increased.

The difference between the lending rate and the savings deposit rate based on the amount of new bank loans, i.e. the expected interest rate gap, decreased by 0.06%p from the previous month (1.20%p) to 1.14%p. This is because the decline in the lending rate was greater.

The expected interest rate differential based on the balance, not the new handling standard, also decreased by 0.05%p from 2.36%p to 2.31%p.