Six months have passed since entering the interest rate cut cycle, but the bank housing loan rate has not decreased significantly. Since lowering the rate could attract a surge in loan demand, banks are cautiously monitoring the situation. Major banks are expected to tighten and then loosen household loans using non-interest methods rather than lowering loan rates in the remaining first half of this year. The financial authorities are also reportedly unable to actively encourage banks to lower rates, considering these circumstances.
According to the Consumer Portal of the Korea Federation of Banks on the 21st, the average rate of new housing loans among the top five banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) is distributed between 4.27% and 4.52% as of last month. This has not changed significantly from the average rate of 4.28% to 4.55% in January. Although the Bank of Korea lowered the base rate twice last year and once in February of this year, it has had little effect on bank housing loan rates.
Major banks are primarily reviewing a policy of not lowering housing loan rates in the remaining first half of this year. Instead, they plan to adjust the supply of household loans using non-interest methods depending on the situation. Non-interest methods refer to adjusting loan processing without changing the interest rate. Typical non-interest methods include restrictions on the conditions for borrowers and collateral, adjustments to repayment deadlines, and adjustments to loan limits. Recently, due to concerns about a surge in household loans in certain areas of Seoul, some banks have introduced policies to limit housing loans to speculative risk areas in Seoul or to current homeowners in the metropolitan area, indicating a gradual increase in non-interest methods.
The reason banks are complicating their non-interest methods rather than lowering rates is to avoid immediate stimulation of household loans due to rate cuts. With the implementation of the three-stage total debt principal and interest repayment ratio (DSR) coming in July, loan limits are expected to decrease, leading to an anticipated last-minute surge in demand before regulatory tightening. In this environment, if one bank lowers its rates, consumers aiming to secure loans beforehand will flock to that bank, which is also contrary to the policy direction of the financial authorities. The financial authorities have declared that they will manage household loans to prevent a surge at certain times this year and have encouraged financial institutions to adhere to this policy.
From the banks' perspective, they do not want to risk falling out of favor with the financial authorities, so they are reluctant to lower rates hastily. One bank official noted, "Loan demand can hardly help but be heavily influenced by the interest rate," adding, "If the rate is even slightly lower than that of other banks, consumers wanting to take out loans will flock there." Another bank official stated, "There’s certainly a desire to lower rates first and attract customers when not all banks can lower their rates, and the game of cautiousness about lowering loan rates will likely continue while strict total household loan management is in place."
It is reported that the financial authorities are also unable to actively pressure the banking sector to lower loan rates, considering these circumstances. Since rate determination is uniquely the bank's authority, the financial authorities bear the responsibility for policy failure if there is a significant surge in loans following a rate cut. Accordingly, the financial authorities have reportedly urged banks in discussions related to household loans to avoid increasing loan volatility.