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Rate cut for whom? Loan interest still near 4 percent despite BOK easing

Published: 20 Apr. 2025, 16:30

Four ATMs located in Seoul [YONHAP]

Loan interest rates in Korea continue to hover above 4 percent, even as the Bank of Korea (BOK) signals a shift toward monetary easing.

Banks have sharply lowered deposit rates in recent months, but lending rates have barely moved, widening the gap between the two.

KB Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank offered variable mortgage rates between 4.07 and 5.59 percent, finance industry sources said Friday.

The rates have fallen only slightly from the 4.13 to 5.83 percent range recorded at the end of March. Fixed mortgage rates ranged from 3.35 to 5.08 percent as of Friday.

The BOK held its base rate steady the previous day but made clear that it remains in a rate-cutting cycle.

Although the BOK lowered the standard rate by 0.25 percentage points in October, November and again in February, banks have not moved in step with those cuts.

Banks have been slow to cut their loan interest rates to align with the central bank's intentions.

Fixed mortgage rates at the major banks stood between 3.47 and 5.31 percent on Feb. 25. Over the past two months, the lower end of that range has dropped by only 0.12 percentage points. Variable rates have fallen just 0.14 percentage points during the same time frame.

During the same period, deposit interest rates have dropped much more rapidly.

One-year term deposit rates at the four banks ranged from 2.15 to 2.68 percent as of Friday. Even with full preferential rates, the maximum yield remains between 2.6 and 2.7 percent.

Those same banks in February offered term deposit rates ranging from 2.91 to 3.02 percent annually.

While loan interest rates fell by just over 0.1 percentage points during that period, deposit rates dropped three times as much — by 0.3 percentage points.

Short-term deposits saw even steeper declines. KB Kookmin and Shinhan Banks currently offer 1.8 percent for one-month term deposits, while Hana Bank offers 2 percent. Even savings banks — which generally provide higher deposit rates — now offer an average one-year term deposit rate of just 2.96 percent.

The decline in deposit rates can be traced back to the BOK's streak of cuts on its standard interest, that is expected to continue into the future.

While financial authorities have publicly called for lower lending rates, they have avoided direct intervention due to concerns over a surge in household loans.

Recent policy changes related to land transaction permit zones have led to increased housing transactions.

Apartments in Songpa District, southern Seoul are seen on March 19. [NEWS1]

Managing household loans has become critical as the increase in housing transactions and the rise of real estate prices, which occurred during the land transaction permit zone period, will likely affect household loans starting next month.

Base rate cuts and a divergence from them have occurred in response.

iM Bank — the digital banking division of DGB Daegu Bank — raised both fixed and variable mortgage products by 0.3 percentage points. iM Bank made the move after its mortgage rates dipped to the mid-3 percent range, raising concerns about concentrated demand.

BNK Kyongnam Bank increased its variable mortgage rate by 0.25 percentage points.
“Bank bonds and the Cost of Funds Index, which affect mortgage rates, have been gradually falling,” a commercial bank official said. “But banks hesitate to lower the spread rate they raised last year. If their rates fall too far below competitors, they could see a rush of loan applications.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY JEONG JIN-HO [[email protected]]