Deposit interest rates are falling, but loan interest rates remain the same.
As demand for household loans decreases, the number of recipients decreases.
Common people ‘frustrated’ by the weight of the base interest rate freeze
Notices on mortgage loan products are posted at commercial banks in Seoul. ⓒNewsis
As the prospect that the Bank of Korea will freeze the base interest rate at the Monetary Policy Committee meeting this week is gaining weight, the worries of actual consumers and self-employed people struggling with the burden of loan interest are deepening.
In particular, deposit interest rates are low, but loan interest rates continue to rise, causing the deposit-loan interest rate gap to widen again.
According to the financial industry on the 25th, the interest rate on term deposit products with a 12-month maturity at the five major commercial banks, including KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, was calculated to be around 2.85-2.90% per year.
The deposit interest rate, which was hovering around 4% per year until last year, has fallen to the 2% range in just a few months.
The reason why commercial banks are so passive in attracting deposits is because there are no suitable places to lend money.
In general, banks raise funds by attracting depositors and increase credit.
However, as the demand for household loans has recently plummeted, there is no need to attract deposits by paying high interest rates.
In fact, as of the 20th, the household loan balance of the five major banks was 764.7743 trillion won, a decrease of more than 2 trillion won compared to the end of last year.
Among these, mortgage loans decreased by KRW 1.8821 trillion, and credit loans also showed a clear decline, decreasing by KRW 763.6 billion.
From the bank’s perspective, which must protect profitability, there is no reason to increase funding costs by raising deposit interest rates in a situation where lending is decreasing.
On the other hand, lending interest rates are not falling as quickly as deposit interest rates.
Rather, market interest rates are maintained at a high level, reflecting the uncertainty of the future market.
The loan interest rate is calculated by linking it to a complex index such as COFIX or financial bond interest rates, as well as the additional interest rate.
Recently, with increased pressure from financial authorities to manage household debt to suppress loan demand, it is difficult for banks to preemptively lower lending interest rates.
Due to these structural problems, the dissatisfaction of actual consumers seems to be growing day by day.
Meanwhile, the market expects the Bank of Korea’s Monetary Policy Committee to maintain the base interest rate at the current 2.50% per annum this week.
As housing prices in the metropolitan area are still on the rise and the won-dollar exchange rate is highly volatile, it is analyzed that it will be burdensome to hastily take out the interest rate cut card.
The Bank of Korea deleted the phrase suggesting the possibility of an interest rate cut from its monetary policy direction resolution in November last year.
The resolution stated, “We will support the recovery of growth, but in this process, decisions will be made while closely examining changes in domestic and foreign policy conditions, resulting price trends, and the financial stability situation.”
Bank of Korea Governor Lee Chang-yong also explained at a recent press conference, “I didn’t mean to raise interest rates, but I wanted to send a signal that the cuts will not continue.”
He added, “I would like to express that the current interest rate level is not an increase in interest rates, but a normalization of the excessively low interest rate level at the time due to expectations of an interest rate cut.”
As the line is drawn against expectations of interest rate cuts, some are concerned that the suffering of ordinary people and the self-employed may increase.
This means that a vicious cycle may continue as consumer sentiment declines due to prolonged high interest rates, leading to a decrease in sales for self-employed people and an increase in loan delinquency rates.
An official from the financial sector said, “If deposit interest rates fall quickly while suppressing lending, interest rate asymmetry may deepen,” and added, “We need a sophisticated policy design that can reduce the interest burden on actual consumers.”
