Interest Rate Still High for Loan Seekers
By Yoon Ja-young
Staff Reporter
Lee Ji-hyun, an office worker, gave up a plan to start her own small business. She planned to get a loan using her apartment as collateral to fund the business upon finding out that some banks lowered annual interest rates on these to below 4 percent. When she visited a bank in Jongno, downtown Seoul, however, she found the bank asking for a nearly 6 percent interest rate. The vice head of the bank branch she consulted said she would be subject to around a 10 percent interest rate for loans on credit as the company where she works is a small one. ``The bank told me that the mortgage rate of less than 4 percent is only a story in the news far from reality,'' Lee said.
The central bank lowered key rates a number of times to lessen the burden on debtors to boost the economy, but loan seekers aren't benefiting from the steps at all. Though the CD rate has fallen by around 2 percentage points from two years ago, the interest rate on loan seekers hasn't changed much, as banks raised the ``added rate.''
The added rate, which the bank levies on top of the CD rate, the basis for mortgage rates, differs according to the customer's credit rating and the bank's profitability. Banks have raised the added rate especially on new loan seekers to make up for losses incurred by the high interest rates they gave to depositors last year.
Banks have apparently lowered mortgage rates. The interest rate on mortgages at Kookmin Bank stands at 3.72 to 5.22 percent, down 0.02 percentage points from the previous week and the lowest level since 2001. Woori Bank cut its rate by 0.03 percentage points to between 3.86 and 5.16 percent, and Shinhan Bank also pulled it down by 0.03 percentage points to between 3.76 and 5.06 percent.
The rate is far from real for new loan seekers, as banks are levying around 2.5 percentage-point added rates on CD rates.
The banks are raising the added rate now since they attracted depositors with around 7 percent annual interest rates last year when they were facing liquidity problems. They also sold bonds at over 8 percent rates to meet the BIS ratio.
The plunge of the CD rate, the basis for mortgages and housing-backed loans, in a short period of time, however, resulted in banks borrowing money at high interest rates to lend to loan seekers at low interest rates. The mortgage rate is linked to the CD rate, but only around 30 percent of the money comes from CDs. Most of the money is raised through high interest rate deposits and bonds. To make up for the loss, banks are raising added rates on new loan seekers.
However, banks are being criticized for transferring the burden to customers. When CD rates soared last year, banks didn't cut the added rate.
Some analysts point out that the banks should have focused on income diversification and not only depend on interest margins. ``Their growth strategy to set off the falling interest margin of the past few years has reached a limit,'' said Shin Kyu-kwang, an analyst at SK Securities.