Value context and insight. lkm@koreatimes.co.kr
Borrowers hit hardest by loan interest hikes
The outer wall of a commercial bank in Seoul Korea Times file
By Lee Kyung-min
By Lee Kyung-min
An increasing number of borrowers are expressing frustration over the sharp rise in loan rates, a result of lenders raising surcharge rates amid the government tightens lending rules put in place to curb household debt.
A petition filed on the Cheong Wa Dae website demanding the government rein in the spiking surcharge rates has accumulated over 12,000 signatures in only less than a week after it was posted Nov. 5.
The annual fixed mortgage rates offered by Korea's top four lenders ― KB Kookmin, Shinhan, Hana Bank and Woori ― had been between 3.97 and 5.38 percent as of Aug. 1. The figures are up almost a full percentage point, or 0.96 percent, as of last week compared to a range of between 2.92 and 4.42 percent in August.
The average figure for variable mortgage rates during the same period rose 0.62 percentage points, while unsecured loans increased 0.51 percentage points.
This means a lender who borrowed 200 million won ($169,500) at a fixed annual rate has to pay about 10.76 million won in annual interest, up by 2 million won from 8.84 million won.
The rates are expected to soar further since the Bank of Korea (BOK) is “almost certain” to raise its key rate in a rate-setting meeting late this month, fueled further by inflation expectations exhibiting an upward trend.
Market rates as illustrated by the interest rate on five-year bank bonds, the most commonly used benchmark for fixed mortgage rates, rose to 2.656 percent as of October, up 0.765 percentage points from 1.891 percent two months earlier.
Interest rates on one-year bank bonds, the benchmark for unsecured loans, also rose to 1.743 percent, up 0.49 percentage points from 1.253 percent in the same period.
Criticism of lenders is all the more mounting, given their widening profit margin from the difference between deposit rates and lending rates, also known as loan-to-deposit margin. The larger the difference, the higher the profits of banks and their holding firms.
The difference stood at 2.1 percentage points in August, the widest in 11 years since October 2010. This led to Korea's four financial groups' cumulative interest income in the first three quarters each reporting year-on-year increases of up to 15 percent.