By Na Jeong-ju
Staff Reporter
The borrowing rates on floating-rate home-backed loans surged by 0.15 percentage points for the past two weeks as the interest rate on 91-day certificates of deposit (CDs), the benchmark for most variable-rate loans, rose to its highest level in six years and four months.
The rise in CD rates raises interest payments for borrowers and reduces their spending capabilities.
As of the end of October, the country had some 220 trillion won in outstanding mortgage loans. Given less than 10 percent of the loans are fixed-rated, the interest burden on borrowers increased by 330 billion won for the past two weeks, according to bank officials.
The 91-day CD rate rose to 5.50 percent on Friday, topping the mark for the first time since July 2001.
The annual interest rate on home-backed loans at Kookmin Bank, the country's largest lender, ranged 6.15 to 7.75 percent as of Sunday, up 0.14 percent points from two weeks ago, the bank said.
Despite the rise in interest costs, banks have increased housing loans. As of Nov. 22, the country's six largest lenders _ Kookmin, Woori, Shinhan, Hana, Korea Exchange and Industrial Bank of Korea _ had 163.7 trillion won in outstanding mortgage loans, up 1.06 trillion won from a month ago.
Analysts forecast the CD rate will rise for the time being unless banks see a significant improvement in their deposit balance. As more depositors have taken their money out of banks to invest in stocks, banks have suffered an erosion of banks, they had to issue more CDs to raise enough funds for loans, prompting a rise in CD rates.
Banks plan to reduce loans to small- and mid-sized firms and introduce tougher lending criteria for households in line with stricter capital rules, dubbed Basel II, scheduled for early next year.
However, an erosion of deposits and tougher competition among banks is expected to increase demand for funds, analysts say.
Along with high prices of international crude oil and other raw materials, they say rising interest payments will likely reduce disposable incomes of the nation's households and dampen private consumption.