A customer uses one of the ATMs lined up in an office building in Seoul on June 28. Yonhap News Agency
Lee Hwang Woo
Commercial banks once again appear to be enjoying a windfall as government pressure to raise mortgage rates means lenders can pocket huge amounts of interest income.
Such pressure on lenders contradicts the government's widespread policy of lowering lending rates to make bank loans more accessible to low-income households and small business owners.
The policy was also rooted in public criticism that lenders were not working hard enough to boost profits, mainly through net interest income from rising lending rates and falling deposit rates.
Under these circumstances, more and more people are taking out home loans, which goes against the government's banking policy and could undermine the government's plans to stabilize people's lives.
As of Thursday, South Korea's four largest commercial banks — Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank — were offering an average annual mortgage interest rate of 4.4359 percent.
The average interest rate rose from 4.353% at the end of June, despite a decline in the annual interest rate on five-year AAA-rated financial bonds with no principal guarantee.
The government bond rate, which serves as the benchmark for determining mortgage interest rates, fell this month from 3.451% to 3.323%.
KB Kookmin Bank raised mortgage interest rates three times in July alone, including a 0.20 percentage point increase on Thursday.
Shinhan Bank plans to raise interest rates by 0.05 percentage points on Monday, while Woori Bank is set to implement a 0.2 percentage point hike on Wednesday.
“This situation makes us concerned that we may find ourselves solely responsible for any windfall gains, despite having closely followed requirements under the government's broader goal of reducing household debt,” a bank spokesman said, requesting anonymity.
Officials noted that mortgages make up the largest portion of household debt, amounting to more than 1,100 trillion won ($792.9 billion).
According to the Financial Services Commission, housing loans at banks nationwide increased by 6.3 trillion won in June from the previous month, up from the 5.7 trillion won monthly increase in May.
The official also pointed out that the widening gap between lending and deposit rates could intensify criticism of windfall profits, especially at a time when the Bank of Korea is considering when to next cut interest rates in order to ease inflation.
In line with the possibility of a rate cut by the Bank of Korea, the four commercial banks cut their deposit rates by an average of 0.097 percentage points in July alone.
KB National cut interest rates by 0.1 percentage points. Shinhan cut interest rates twice, by 0.07 percentage points on July 8 and 0.05 percentage points on July 12, and Hana cut interest rates by 0.05 percentage points.
Net interest income is the main source of revenue for the big four banks and their parent groups, reaching a milestone of 40 trillion won for the four groups combined in 2023, for example.