Value context and insight. lkm@koreatimes.co.kr
Does widening deposit-borrowing differential unduly benefit lenders?
gettyimagesbank
By Lee Kyung-min
Major commercial lenders are trimming deposit rates while hiking borrowing rates, in what market participants say is a "self-serving" excuse to boost their interest income at the expense of borrowers.
The lenders continue to lower deposit rates, citing expectations of the U.S. Federal Reserve easing, accompanied by economic downturn concerns. The collective claim is gathering pace across the equity market, as evidenced by falling U.S. Treasury yields and a subsequent ticking down in Korea's market rates.
However, borrowing rates remain high, a result they say is inevitable due to compliance with financial authorities' household debt-curbing measures. The combined balance of household loans granted by Korea's top five banks came to 715.7 trillion won ($525 billion) as of the end of July. The 39-month high and a month-on-month increase of over 7 trillion won is an alarming continuation in the debt buildup since April.
According to market sources, deposit rates of the five — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — will be lowered by 0.2 percentage points starting Monday.
They say a recent downtrend in bank debenture rates and market rates should be reflected in the retail products.
And yet, borrowing rates are higher.
The fixed mortgage rates provided by the five tracked up to over 3 percent in mid-June, according to Friday data. It ended 45 days of below-3 percent borrowing rates for home buyers since 2021.
Their floating rates came to a range of between 3.03 percent and 5.204 percent, as of Friday. The floor for the rate climbed 0.19 percentage points from July 19.
The uptick is highly unusual since the floor for the benchmark five-year bank debenture rates came to 3.204 percent, down 0.141 percentage points over the same period.
Even the market rate, as measured by the benchmark cost of funds index, remained unchanged at 3.52 percent.
"Banks will lower deposit rates in line with global market developments. However, borrowing rates will remain outside the scope of the normal rate adjustments due to concerns specific to Korean household debt vulnerabilities," an industry official said.