Borrowers face unfavorable market conditions

Bank tellers tend to customers in this file photo / Yonhap

By Kim Bo-eun

It has become increasingly tough for individuals and businesses to borrow money, due to rising mortgages rates as well as the government's regulations, data showed Sunday.

Data shows the interest rate for fixed rate mortgages of Shinhan, KB Kookmin, Woori, KEB Hana and Nonghyup banks are set to rise by 0.035 percentage points to 0.09 percentage points, Monday, from the figures a week earlier on Nov. 4.

This compares with the rates before the Bank of Korea cut the key rate from 1.5 percent to 1.25 percent on Oct. 16. Compared with the rates of the major banks on Oct. 14, Monday's rates will be higher by 0.29 percentage points to 0.55 percentage points.

The rise in loan interest rates is based on the market rate. Yields for three-year bonds which stood at 1.345 percent on July 18 fell to 1.093 percent on Aug. 19 but have been on the rise since. The rate also rose from 1.32 percent on Oct. 16 to 1.518 percent on Nov. 8.

Another factor is government regulations. Under new regulations on loans that will go into effect next year, banks will have to keep their loan-deposit ratios from exceeding 100 percent.

As a means to adjust the ratio accordingly, banks are seeking to hold their deposit interest rates at the same level to keep as well as increase deposits and raise loan interest rates to reduce loans.

With the exception of foreign banks such as Standard Chartered and Citibank, major commercial banks have refrained from lowering their deposit interest rates, despite the key rate cut.

The government is also regulating the growth of household loans, limiting banks' growth of household loans to below 6 percent. Data shows Shinhan, Woori and Hana banks' figures are 6.9 percent, 6.5 percent and 6.1 percent, respectively, pointing to the need for them to scale down on loans.

Such regulations have had a curbing effect on the growth of household loans. Mortgages grew by 2.06 trillion won in September from a month earlier, which was the smallest growth in 11 months. This compares with a 6.1 trillion won growth in September 2018 from a month earlier.