Consumers frustrated with rising lending rates, falling deposit rates

A man walks by ATMs of commercial banks in Seoul, Monday. Yonhap

Min, a 40-year-old office worker, says she gets a headache every time she checks the household lending rate. She hopes to move into a larger home in Daejeon, but high interest rates continue to hold her back.

"Even though the benchmark rate is coming down, loan interest rates don’t seem to be dropping," she said. "It’s hard not to worry about the second half of the year."

According to the Korea Federation of Banks (KFB), the interest rate gap between household loans and deposits at the five major commercial banks hit a record high in March, ranging from 1.38 to 1.55 percentage points.

This means borrowing has become more expensive, while saving is less rewarding — leaving households financially squeezed on both ends.

For Shinhan Bank and Hana Bank, the gap was the largest since the KFB began publishing this data in July 2022. KB Kookmin, Woori and NH NongHyup also recorded their widest spreads since 2023 — a period marked by aggressive policy rate hikes aimed at curbing high inflation. The trend was even more pronounced among regional banks.

Despite the Bank of Korea initiating a rate-cutting cycle, the interest rate spread continues to widen. Lower benchmark rates usually translate to reduced lending margins.

This anomaly appears to be driven by regulatory and policy dynamics. Korea’s persistently high household debt has remained a key concern for financial authorities, prompting them to tighten lending limits on banks last September.

Adding to the pressure, a recent surge in property prices in parts of Seoul — triggered by the temporary lifting of real estate restrictions under Mayor Oh Se-hoon — has contributed to rising loan demand, with banks inflating interest rates in response.

As of late April, the total household loan balance at the five major commercial banks reached 743.08 trillion won ($535.7 billion) — a 4.5 trillion won jump in just one month, marking the largest monthly increase since last September.

Korea’s household debt-to-GDP ratio also remains the second-highest among 38 major economies, according to data from the Institute of International Finance.

The ongoing tightening has left many consumers increasingly frustrated. They claim the benefits of the central bank’s rate cuts appear to be flowing to banks despite their intended goal of easing borrowing costs.

The four major financial groups — KB, Shinhan, Hana and Woori — reported a combined 2.3 percent increase in interest income in the first quarter of 2025 compared to the same period last year.

"The widening gap between lending and deposit rates primarily undermines consumer welfare and, in the long run, weakens overall spending power by increasing the financial burden on households," said Seo Ji-yong, a professor of business administration at Sangmyung University.