Banks raise loan rates in response to tightening

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Banks raise loan rates in response to tightening

Major Korean banks raised interest rates on adjustable-rate mortgages Tuesday in response to monetary tightening at home and the United States, making loans in the 2 percent range a rare item.

Shinhan Bank revised its range on adjustable-rate loans by 0.02 percentage points, from a range of 3.14-4.45 percent to a range of 3.12-4.43 percent.

Woori Bank also moved up its range by 0.02 percentage points, from 3.19-4.19 percent to 3.17-4.17 percent. KB Kookmin Bank raised its range from 3.3-4.5 percent to 3.34-4.54 percent, and Nonghyup Bank adjusted the range from 2.98-4.5 percent to 3-4.59 percent.

Interest on adjustable-rate loans is based on the Cost of Funds Index (Cofix) rate and spreads set by each bank. The higher rates Tuesday were caused by an increase of the base Cofix rate from 1.77 percent to 1.79 percent as notified by the Korea Federation of Banks.

Cofix rates are calculated by averaging the interest rates of bank debentures, certificates of deposit, fixed deposits and installment savings by nine major lenders.

Before the change, Nonghyup Bank offered mortgages in the 2 percent range, but now, no major institutions will be able to provide such low-rate loans.

The Bank of Korea is set to determine its key interest rate on Thursday after raising the benchmark rate to 1.5 percent in November from a record-low 1.25 percent, the first hike in more than six years.

Ninety-nine percent of bond traders and investors expect the central bank to freeze the rate this week, according to a survey by the Korea Financial Investment Association on Tuesday.

The central bank, analysts say, will likely opt for a wait-and-see approach as it gauges the impact of the November hike.

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