Possibility of prolonged US monetary tightening policy
There is a battle to receive 100 trillion won worth of funds ahead of maturity.
The number of term deposit products with interest rates in the 4% range is increasing.
Authorities “Preemptive response without excessive competition”
The United States’ monetary tightening stance is prolonged, and deposits worth 100 trillion won (based on one-year maturity products), which were deposited at high interest rates after the Legoland incident that occurred in October last year, are coming to maturity, and market interest rates are rising all at once. Competition to receive bank notes to prevent large-scale capital outflows is driving up lending interest rates.
Although the mortgage loan interest rate has recently exceeded 7%, the rate of increase in household loans is increasing. Financial authorities have come up with a plan to strengthen household loan management, such as raising the standard for calculating the total debt service ratio (DSR) of mortgage loans, but they are unable to control the increase in household debt.
According to the financial sector on the 24th, the variable interest rates for mortgage loans for KB Kookmin, Shinhan, Hana, and Woori Bank as of the 21st are 4.270-7.099% per year. The upper interest rate rose 0.130% point from the end of last month. COFIX (Funding Cost Index), which is the standard for variable interest rates on mortgage loans, fell for two consecutive months, lowering the lower interest rate slightly, but commercial banks raised the upper interest rate in consideration of the rise in market interest rates.
The fixed interest rate (mixed type) for home loans also increased by 0.070% points and 0.219% points at the bottom and top, respectively, to 3.900-6.469% per year. The interest rate on credit loans (credit level 1, maturity of 1 year) also increased by 0.140 percentage points at both the top and bottom, from 4.420 to 6.420% to 4.560 to 6.560%. This is because the interest rates for 5-year bank bonds (AAA credit rating, unsecured) and 1-year bank bonds (AAA credit rating, unsecured), which are indicators of two interest rates, rose by 0.170% points and 0.147% points, respectively, due to the outlook for prolonged austerity in the United States and Korea. The U.S. central bank, the Federal Reserve (Fed), froze the base interest rate on the 20th (local time), but left open the possibility of further interest rate increases within the year.
Although market interest rates are showing an upward trend, the rate of increase in household debt is actually expanding. As of the 21st, the household loan balance of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) was KRW 682.4539 trillion, up KRW 1.6419 trillion from the end of August (KRW 680.812 trillion), up 8. It exceeded the monthly increase (KRW 1.5912 trillion). Kang Seong-jin, a professor of economics at Korea University, analyzed, “With signs of a revival in the real estate market, many financial consumers expect interest rates to go down next year, so the balance on mortgage loans is increasing.”
Deposit interest rates are also rising. Among the 36 term deposits (based on one-year maturity) of 19 banks announced by the Korea Federation of Banks on the 24th, 10 products have interest rates of up to 4% per annum. Until early last month, there were only five products with annual interest rates in the 4% range. An official from a commercial bank said, “At the time of the Legoland incident last October, the deposits held at 5% reached 100 trillion won, so banks have no choice but to raise interest rates to maintain the deposit balance.”
The government is concerned that competition among banks could increase procurement costs and eventually lead to higher lending interest rates. Deputy Prime Minister and Minister of Strategy and Finance Chu Kyung-ho also said at an emergency macroeconomic meeting on the 21st, “We will take preemptive measures to prevent excessive competition in the financial sector to secure funds due to the maturity of high-interest deposits in the fourth quarter (October to December) from recurring.” .
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.