By Nam Hyun-woo
The margins between interest rates on deposits and loans of domestic banks continue to grow, drawing criticism that they make handsome profits at the expense of ordinary people.
According to Bank of Korea (BOK) data Tuesday, the average annual interest rate on new loans to households stood at 3.39 percent in January, up 0.1 of a percentage point from a month earlier.
The rate was 2.95 percent last August and rose for five straight months through this January to reach the highest level since February 2015 when it was 3.48 percent.
The mortgage rates, which are significant in relation to soaring household debt, averaged 3.16 percent, up 0.03 percentage points from a month earlier.
The average interest rate for overall new loans including both corporate and household sectors came to 3.51 percent last month, up 0.07 percentage points from a month ago, although the central bank’s policy rate has been unchanged for eight straight months.
The BOK explains that the hike in the interest rate is attributable to the banks’ efforts to strengthen their risk management on loans to households but critics argue the lenders are turning a blind eye to the general public and care only about their profits.
Unlike the upward trend in the interest rate, rates on deposits declined.
The average interest rate on new deposits was 1.51 percent last month, down 0.05 percentage points from the previous month, which marked the first decline in deposit rates since last August.
Following the downward adjustment, the average margin between rates on loans and deposits stood at 2 percentage points, the widest gap since January 2013.
According to separate BOK data submitted to Rep. Kim Jong-min of the main opposition Democratic Party of Korea, a 1 percentage point rise in loan interest rate will produce a 24.7 trillion won ($21.80 billion) surge in the amount of debs held by marginal households.
Should there be a 1 percentage point hike on the loan interest rate, the number of marginal households would increase by 69,000 from the year before. The amount of their average annual interest burden would also grow to 8.91 million won from 7.55 million won.
“The government should come up with measures to help vulnerable borrowers find ways to deal with their rising debt,” Rep. Kim said.