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Banks’ lending rate jumps 0.5% points in 45 days

Posted October. 18, 2021 09:30,   

Updated October. 18, 2021 09:30


The lending rate commercial banks levy on borrowers has jumped nearly 0.5 percentage points during a month and half and is now close to hitting the annualized rate of 5 percent. As the central bank is poised to hike the benchmark interest rate once more in November, borrowers will likely face a heavier interest burden.

According to sources in the financial industry on Sunday, the floating interest rate for housing mortgage loans by the four largest commercial banks, namely KB Kookmin, Shinhan, Hana, and Woori, will rise to 3.031- 4.67 percent per year from Monday. The new rates represent up 0.411- 0.48 percent from late August. The hybrid (fixed) annual interest rate on housing mortgage loans will also increase from 2.92 - 4.42 percent to 3.14 - 4.95 percent. The max interest rate has jumped 0.53 percentage points in a month and a half to reach almost 5 percent per annum.

The rising interest rate is stemming from the increasing market interest rate caused by hikes in the benchmark rate and other reasons, while banks are reducing prime rates and raising extra rates on borrowers to slow the growth of loans. Cost of Funds Index (COFIX) based on new credits, which serves as the benchmark for floating interest rates for housing mortgage loans, jumped 0.14 percentage points from a month ago to hit 1.16 percent in September. The gain represents the highest jump in three years and 10 months.

As the Bank of Korea is expected to raise the benchmark rate from 0.75 percent at present to 1 percent next month, the rising trend of banks’ lending rates will likely further accelerate. Earlier the central bank estimated that a 1-percent hike in benchmark rate will add 5.8 trillion won (approximately 4.9 billion U.S. dollars) in extra interest burden on households.

Hee-Chang Park ramblas@donga.com