Despite the Base Rate Cut, Mortgage Loan Rates at the Four Major Banks Rise… Concerns Over Widening Interest Rate Spread

 

 

 

 

Despite the Bank of Korea ending its three-year monetary tightening cycle and lowering the base interest rate by 0.25 percentage points, the mortgage loan interest rates of major domestic banks have instead risen.

Notably, the lower end of fixed-rate mortgage loan rates from the four major banks (KB Kookmin, Shinhan, Hana, Woori) has climbed into the 4% range, with the lower end increasing by 0.16 percentage points over the past week.

This phenomenon can be attributed to the tendency of bank loan rates to reflect market rates with a delay, as well as the rise in key loan rate indicators like the Cost of Funds Index (COFIX).

COFIX is calculated by taking the weighted average of interest rates and the amounts of deposit products handled by banks, so market rate fluctuations are not immediately reflected and are incorporated with a certain time lag.

Additionally, pressure from financial authorities to manage household loans is considered another major factor driving the increase in loan interest rates.

To curb the growth of household loans, banks have been raising loan interest rates by increasing the spread since July.

Meanwhile, despite expectations that loan interest rates will soon fall due to the base rate cut, with the current upward trend in household loans, it is unlikely that banks will significantly lower loan interest rates.

On the other hand, fixed-term deposit interest rates have yet to experience significant changes, but if market rates continue to decline, deposit interest rates are likely to drop soon.

Major banks have already partially lowered deposit interest rates in recent months to reflect falling market rates, and deposit rates are expected to be adjusted earlier than loan rates.

Ultimately, with market rates falling, there are concerns that the interest rate spread between loans and deposits (loan interest rate - deposit interest rate) could widen, highlighting the need for increased oversight from financial authorities and stronger management of loans by banks.

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Despite the Base Rate Cut, Mortgage Loan Rates at the Four Major Banks Rise… Concerns Over Widening Interest Rate Spread