The average spread between deposit and loan rates of the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) has reached a record high since the related statistics were announced. Following the base rate cut, banks quickly lowered their deposit rates, while they are hesitant to reduce loan rates. This phenomenon stems from the adverse effects of household loan volume regulations, giving banks justification to set high loan rates while diminishing competition to lower deposit rates.
According to the Consumer Portal of the Korea Bankers Association on the 1st, the average household loan-to-deposit spread of the five major banks, excluding policy finance, was 1.38 percentage points in February. This is the largest gap since the Korea Bankers Association began compiling and announcing related statistics in July 2022. The loan-to-deposit spread of the five major banks has widened for seven consecutive months since August last year. Looking at individual banks, NH Nonghyup Bank had the largest spread at 1.47 percentage points. Next were Shinhan and Hana banks at 1.4 percentage points, while KB Kookmin Bank recorded 1.33 percentage points. Woori Bank had the lowest loan-to-deposit spread among the five major banks at 1.3 percentage points.
The household loan-to-deposit spread refers to the difference between the household loan rates of each bank and the deposit rates. In this case, only household loan products that exclude policy finance products targeted at low-income households, such as 햇살론 and 사잇돌 loans, are used as a basis for the interest rates. This is because policy finance products are supported by both the government and banks and have limited consumers, resulting in lower interest rates than general loan products. The loan-to-deposit spread excluding policy finance is an indicator that reflects the spread felt by a majority of financial consumers.
The reason for the continued widening of the loan-to-deposit spread is that banks are rapidly lowering deposit rates while slowly decreasing loan rates. Banks are setting additional charges higher than before, delaying the reduction of loan rates. The average deposit rate for households of the five major banks decreased from 3.374% in September last year to 2.97% in February of this year. In contrast, the average additional charge increased slightly from 3.088% to 3.118% during this period.
It is interpreted that the household loan volume regulation has affected the loan-to-deposit spread. As financial authorities tightened household loan volume regulations in the second half of last year, the first method chosen by banks was to raise loan rates, making borrowing more difficult. Although Kim Byeong-hwan, chairman of the Financial Services Commission, and Lee Bok-hyeon, head of the Financial Supervisory Service, have consistently stated that loan rates should be lowered, banks have not reverted to previous levels after increasing additional charges.
The regulation of the loan-to-deposit ratio, which is closely related to loan volume, has led to a disappearance of competition for deposit rates. Banks must hold deposits equivalent to their lending volume. If the loan volume can be increased freely, banks will need to secure more deposits, leading to competitive reductions in deposit rates. On the other hand, when loan growth does not occur, there is no longer any reason for banks to attract deposits fussily. Thus, in a situation where it is difficult to increase the loan volume like now, banks naturally withdraw from deposit rate competition to reduce interest expenses.
Experts warn that if the phenomenon of widening loan-to-deposit spreads continues for a long time, it will eventually reduce household consumption power. Seo Ji-yong, a professor at Sangmyung University, noted, "This is an adverse effect of the household loan volume regulation focused on short-term performance." He pointed out, "From the perspective of banks, the supply of loans is limited by financial authorities, while consumer demand for loans remains high, so there is no reason for them to actively lower loan rates." Professor Seo expressed concerns that "the loan-to-deposit spread primarily deteriorates the welfare of financial consumers and ultimately increases household financial expenses, reducing overall consumption capacity."