Since the start of the year, the effective spread that the five major commercial banks (KB Kookmin Bank, Shinhan, Hana Bank, Woori, NH NongHyup Bank) add to household loans has been steadily rising. The spread spiked abruptly in early April, when the government tightened lending regulations. The average spread for January–August was highest in the order of Woori, Shinhan, and Hana Bank. KB Kookmin Bank and NongHyup Bank had relatively low average spreads in January–August, in the 1.4% range.
An analysis of the household loan interest rates by credit score posted on the Korea Federation of Banks' consumer portal on the 8th showed that the average effective spread (spread minus preferential-rate adjustments, based on the posted average) on household loans handled by the five major banks from January to August was highest at Woori Bank, at 1.76 percentage points (p).
Shinhan Bank (1.71%p) and Hana Bank (1.58%p) followed, and KB Kookmin Bank and NH NongHyup Bank were at 1.41%p. The effective spread is the figure obtained by subtracting the preferential-rate adjustment, which functions like a discount, from the spread that banks calculate internally.
The average for the five banks hovered at 1.48–1.49%p in January–March and jumped to 1.63%p in April. In April, all five banks raised it at once: Woori (+0.23%p), Hana (+0.18%p), Shinhan (+0.12%p), Kookmin (+0.11%p), and NongHyup (+0.08%p).
This came right after the Financial Services Commission on Apr. 1 set this year's household loan growth rate target at 1.5%, lower than last year's 1.7%, and newly introduced monthly and quarterly control targets. Since then, the average has moved sideways at 1.61–1.64%p, staying at the April level through August (1.61%p).
Trends diverge by bank. Hana Bank, which hit a low of 1.43%p in March, rose for five straight months to 1.71%p last month, the highest among the five major banks. While the base rate fell from 3.15% to 2.96%, the bank raised the spread from 3.45% to 3.69%, pushing the lending rate higher.
NongHyup Bank, which had been at the lowest level through July, cut its preferential rate by 0.27%p in August, lifting its effective spread. Woori Bank fell for three straight months from a peak of 1.98%p in May to 1.60%p in August, and Shinhan Bank dropped from 1.91%p in July to 1.54%p in August.
Banks raise spreads or trim preferential rates to manage total loan volume. To meet the growth rate target set by the financial authorities, they need to curb loan demand, and they do so by raising rates. People who can compare and use multiple banks can choose one with lower rates, but those tied to a main bank face higher costs because they must pay the increased rate as is.