Korea’s big banks post record spreads amid government rate cap

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Korea’s big banks post record spreads amid government rate cap

Published: 06 May. 2025, 12:57 Updated: 06 May. 2025, 15:01

Audio report: written by reporters, read by AI

ATMs in Seoul on May 5 [YONHAP]

While the Bank of Korea continues to lower its benchmark interest rate, the gap between commercial banks’ loan and deposit rates has grown to a record high.

Financial regulators, wary of real estate instability, have placed a de facto cap on falling loan rates only, prompting criticism that state intervention is distorting market dynamics and boosting banks’ profits at the expense of consumers.


Shinhan, Hana's biggest spreads on record

The loan-deposit rate gap — the difference between the interest charged on household loans and paid on deposit products, referred to as spreads — reached its highest level since records began in July 2022, according to data from the Korea Federation of Banks’ Consumer Portal on Monday.

A wider spread means greater profit for banks, but difficulty for consumers to pay off their interests.

The five major commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — reported spreads of 1.38 to 1.55 percentage points for household loans in March, excluding policy-oriented lending for low-income borrowers.

Shinhan Bank posted a spread of 1.51 percentage points and Hana Bank 1.43 percentage points, both the highest on record since mid-2022.

KB Kookmin's March spread of 1.49 percentage points was the highest since January 2023, while Woori Bank at 1.38 percentage points and NH NongHyup at 1.55 percentage points also saw their widest spreads since early and late 2023, respectively.

The year 2023 was a period when the base interest rate was aggressively raised to curb high inflation.

Smaller banks showed even wider margins. Jeonbuk Bank recorded the largest gap at 7.17 percentage points in March, followed by Jeju Bank at 2.71, Toss Bank at 2.46 and Kwangju Bank at 2.34.

Central bank lowers, banks remain static

Typically, the loan-deposit spread narrows when base interest rates decline.

Deposit rates tend to remain fixed until maturity, while most household loans have variable rates that should reflect benchmark rate changes quickly.

A travel loan service counter in Seoul on April 30 [NEWS1]

But despite the Bank of Korea’s shift toward a looser monetary policy, spreads have widened — a development that runs counter to market expectations.

The average interest rates on new household loans at the five major banks ranged between 4.31 and 4.58 percent in March, up slightly from 4.17 to 4.51 percent a year earlier.

At the same time, the highest rate for their flagship one-year term deposit products dropped to between 2.58 and 3.1 percent as of Sunday.

Only NH NongHyup’s “NH Hometown Love Donation Deposit” offers more than 3 percent interest.

This suggests that banks have held loan rates steady or even raised them, while lowering deposit rates — effectively inflating the spread.

Banks blame government

Industry officials blame government pressure to curb household lending contributed to the imbalance.

Property prices in some parts of Seoul have surged following the lifting of land transaction permit zones, prompting regulators to take a stricter stance on mortgage growth.

Apartment complexes in Seoul as seen from Namsan in central Seoul on April 28 [YONHAP]

“After the end of the land permit zone policy in April, signs emerged that household loans were increasing again,” a banking source said. “Regulators shifted from encouraging rate cuts to prioritizing tighter loan management. If banks want to avoid expanding lending, they have no choice but to maintain higher rates.”

Despite falling base rates, banks appear to have raised their credit spreads to push loan rates higher.

The average additional interests — the markup banks add on top of the base rate — at the five major banks rose to between 2.64 and 3.72 percent in March, up from 2.33 to 3.65 percent a year earlier.


'Don't let the banks run loose'

Critics argue that the financial authorities' intervention in rate-setting undermines the effectiveness of monetary easing and merely fuels bank profits.

The four major financial groups — KB, Shinhan, Hana and Woori — posted a combined interest income of 10.64 trillion won ($7.6 billion) in the first quarter, up 2.3 percent from the same period last year. Interest earnings typically fall when rates decline, but the opposite occurred.

“If loan rates remain higher than where the market would naturally set them, it will burden households excessively and may lead to higher delinquency rates,” said Kim Sang-bong, an economics professor at Hansung University.

“If the government wants to manage household debt, it should also consider non-price tools like stricter lending regulations. And if that’s difficult, then at the very least, it should raise deposit rates to prevent banks from reaping excessive profits.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM NAM-JUN [[email protected]]