Credit loan ratio of 4.62%… more likely to rise
In October, the interest rate on home mortgage loans in the banking sector rose the most in six years and five months. It is believed that this is because commercial banks raised interest rates on loans after the financial authorities suppressed household loans. The Bank of Korea raised the base rate to 1.0% a year on the 25th, and lending rates are expected to rise further.
According to the Bank of Korea’s ‘Weighted Average Interest Rate for Financial Institutions in October 2021’ on the 26th, the average interest rate for new loans at commercial banks last month was 3.26% per annum. This is the highest in two years and 11 months since November 2018 (3.28%). It rose 0.25 percentage points from the previous month, but the increase was the largest in six years and five months since May 2015 (0.25 percentage points). The average interest rate on credit loans also stood at 4.62% a year, up 0.47 percentage points from the previous month, approaching 5%. It is the highest since March 2019 (4.63% per annum), before the spread of the novel coronavirus infection (COVID-19) became serious.
Household loan interest rates rose 0.28 percentage points from the previous month to 3.46 percent per annum as interest rates on main loans and credit loans jumped. Last month’s increase was more than three times the previous month’s (0.08 percentage point). Song Jae-chang, head of the Bank of Korea’s financial statistics team, said, “Interest rates such as COFIX (financing cost index) and bank bonds rose, and the interest rate rose as banks began to manage household loans.” The fact that internet-only banks expanded medium-interest loans to the financial authorities’ orders also raised the interest rates on credit loans.
Interest rates on household loans are expected to rise for the time being. This is because the BOK raised the key interest rate from 0.75% to 1.00% the previous day. Lee In-ho, a professor of economics at Seoul National University, said, “The fact that the Bank of Korea Governor Joo-yeol Lee mentioned the possibility of an additional hike in the first quarter of next year (January to March) will also stimulate an increase in market interest rates.”
“We need to reduce loans from 2 financial institutions that have a higher interest burden”
Soaring Loan Rates
Following the base rate hike on the 25th, the Bank of Korea hinted at the possibility of additional hikes around January and February next year, raising concerns that the repayment burden of the ‘young people’ (loans by collecting souls) will increase.
In particular, it seems that the burden on those borrowing from the second financial sector will increase. This is because consumers who have not passed the commercial bank loan review are relying on the second financial sector, where loans are easy even with relatively high interest rates. In the third quarter (July to September), the balance of household loans by non-bank deposit-handling institutions, such as savings banks, was 346.7 trillion won, up 2.4% from the previous quarter. This is a greater increase than the overall increase in household loan balances (2.2%) during the same period.
In the third quarter, the balance of mortgage loans from non-bank depository institutions stood at 101.8 trillion won, up 2.8 percent from the previous quarter. It is analyzed that the real estate ‘last car’ is driven by demand. Kim Hyeon-seop, head of KB Kookmin Bank’s Dogok Star PB Center, said, “If you are a multiple debtor in the first or second financial sector, you need to reduce the loan from the second financial sector, which has a higher interest burden.”
Meanwhile, Woori Bank and Hana Bank raised interest rates on deposits and savings accounts by up to 0.40 percentage points on the 26th. This is a larger adjustment than the increase in the base rate on the 25th (0.25 percentage points). Banks seem to be conscious of criticism that the difference between the deposit-to-deposit rate (deposit rate and loan rate) is excessive by raising the interest rate on loans only recently. An official from the Financial Supervisory Service said, “We will see if the interest rates on loans and receipts are properly calculated.”
Reporter Park Min-woo minwoo@donga.com
Reporter Kim Ja-hyun zion37@donga.com
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