As market rates hit a record high in two years, banks' lending rates are also rising. If the Central Bank in the United States and Korea raise rates, lending rates could climb further.
According to the Korea Financial Investment Association on the 24th, the bank bond one-year (AAA, unsecured) rate, a lending rate indicator, stood at 3.655% as of the 23rd. This is a record high since 3.677% on May 3, 2024. After hovering between 2.5% and 3.5%, it has risen sharply since early May this year.
The rise in market rates is flowing through to higher unsecured lending rates at commercial banks. The upper end of unsecured lending rates at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH NongHyup) was 5% at the end of last month but has now jumped into the 6% range.
Typically, the limit loan (overdraft account, "maitong") rate, which adds 0.5 percentage point (p) to the unsecured lending rate, is also on the rise. For the five major banks, the "maitong" rate for borrowers in the perfect credit score band (951–1000 points) is 4.44%–4.94%, with the upper end nearing 5%. A banking industry official said, "If this trend continues, the 'maitong' rate for perfect credit scorers is expected to exceed 5% even before the Bank of Korea raises rates."
The Bank of Korea is slated to raise the base rate within the year. Governor Shin Hyun-song of the Bank of Korea recently said a rate hike is necessary to stabilize prices. On the dot plot of U.S. Federal Reserve (Fed) members' projections, the median year-end policy rate forecast is 3.8%, higher than 3.4% on the previous dot plot in March.
This year, commercial banks have extended more loans than the target set by the authorities. According to data submitted by the Financial Supervisory Service to the office of Rep. Lee Yang-soo of the People Power Party, the five major banks should have reduced their balance of other loans (all general loans excluding mortgage loan) by 125.3 billion won compared with the end of last year as of May this year, but instead it increased by 1.1583 trillion won.
A financial industry official said, "With the stock market booming this year, demand for 'bit-too' (borrowing to invest) has risen, leading to a sharp increase in lending. Going forward, commercial banks are expected to keep rates elevated and strengthen management of unsecured loans."