Korean lenders cut borrowing rates for first time in 19 months on gov’t pressure

[Photo by Kim Ho-young]

South Korean banks making a profit off mounting interest rates cut their borrowing rates on fresh loans for the first time in 19 months in December following regulatory intervention and public pressure amid worries about snowballing household debt.

Mortgage-based loan rates at Korea’s top four lenders Shinhan, Hana, Woori, and NH Nonghyup reached 5.16-7.72 percent on Tuesday, down 0.22 percentage point from 5.38-7.36 percent on Dec. 1, according to multiple sources from the financial industry on Tuesday. The fall comes three weeks after financial authorities launched close inspection into borrowing rates at commercial lenders.

Interest rates for jeonse loans, or loans for long-term housing rental deposits, also fell from 5.32-6.66 percent to 5.1-6.38 percent. Credit loan rates fell 0.22 percentage point from the top end of 6.22-7.25 percent during the cited period. Skyrocketing household loan rates that had threatened to go over 8 percent hovered at 7 percent.

Mortgage-backed loan rates at Shinhan Bank fell 0.22 percentage point to 5.16-6.41 percent during the cited period. Jeonse and credit loan rates also fell by the same level.

Shinhan Bank said it lowered its spread to bring down borrowing rates. Korean lenders set borrowing rates by adding spread to Cofix, the benchmark for short-term financing cost.

Loan rates at Hana Bank also fell 0.12 percentage point over the past three weeks. Jeonse and credit loan rates at Woori Bank were also down 0.48 percentage point and 0.22 percentage point, respectively while those at NH Nonghyup fell 0.21 percentage point. Credit loan rates at Kookmin Bank fell 0.21 percentage point.

The unusual rate decreases in loans come amid financial authority pressure and negative public sentiment over lenders’ record profit.

“Financial monitoring is essential to prevent bank monopoly such as by excessive spread between deposits and loans in an interest rate hike environment,” said Sung Tae-yoon, economics professor at Yonsei University.

Financial authorities have been closely monitoring bank loan rates from December.

Lenders are mulling to lower loan rates additionally, according to an unnamed official from a commercial bank.

[Photo by MK DB]

Lower loan rates are expected to be a breather to those under big interest burden, such as those that invested in property assets through loans and small- and mid-size businesses operating on borrowed money.

Lenders resumed issuing bank bonds for financing that help prevent a rise in deposit, cofix, and loan rates. External factors, however, such as a rise in treasury yields due to a change in Japan’s financial easing policy and the pace of tapering in the United States may bring up loan rates back.

The yield on five-year bank bonds that moves closely with mortgage-backed and credit loans fell to 4.5 percent from an annual high of 5.467 percent on Oct. 21. The yield on one-year bank bonds also fell 0.6 percentage point from its annual high.

“More issuance of bank bonds will allow lenders to further lower loan rates,” said an unnamed official from a commercial bank.

Deposit rates are also headed south. The deposit rate that stood at 5 percent has gone down to the upper 4 percent level. The deposit-loan interest margin has also narrowed.

[Photo by MK DB]

According to data from the Korea Federation of Banks on Tuesday, the deposit-loan interest margin at four of top five commercial banks KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup fell in November from October.

The household deposit-loan interest gap at Hana Bank reached 0.71 percentage point in November, down 0.28 percentage point from 0.99 percentage point in October.

The fall in the margin comes as the interest rate on household loans rose from 5.01 percent to 5.22 percent while the rate on savings-type deposits gained by 0.5 percentage points from 4.07 percent to 4.57 percent. The household deposit-loan interest margin fell 0.27 percentage point at NH Nonghyup, 0.26 percentage point at KB Kookmin, and 0.23 percentage point at Shinhan Bank. Woori Bank bucked the trend as its household deposit-loan interest margin gained 0.1 percentage point to 1.08 percentage points.