Shinhan Bank, to Reduce Household Loan Spread by Up to 0.3%p
[Seoul = Newsis] Reporter Lee Joo-hye: To manage the increase in household loans, banks are set to lower the interest rate spreads which were raised last year. Other major commercial banks are also expected to adjust their spreads following Shinhan Bank’s lead.
As of the 13th, according to the financial sector, Shinhan Bank will decrease the interest rate spreads on household loans by up to 0.3 percentage points starting the next day.
For specific products, the interest rate spread on housing purchase loans (limited to a 5-year financial bond) will decrease by 0.1 percentage points, and the spread on living stability loans will decrease by 0.05 percentage points.
For jeonse loan (limited to a 2-year financial bond), the spread will be reduced by 0.2 percentage points for loans backed by the Housing Finance Corporation, and by 0.3 percentage points for loans backed by Seoul Guarantee Insurance.
It has been about six months since Shinhan Bank last reduced its interest rate spreads. Beginning last July, they had adjusted demand by increasing the loan interest based on 3-year and 5-year financial bond rates by 0.05 percentage points.
Loan rates at banks are composed of a base rate, which reflects market interest rates, plus an added spread that includes operational costs and risk premiums. It is also used as a means of regulating loan demand and is related to the bank’s profit margins.
The five major banks raised their spreads intensively in July and August of last year to control household loan demand. As a result, the interest rate difference between deposits and loans at these banks surpassed 1 percentage point. Although the Bank of Korea lowered the base rate, the loan spreads were not reduced, leading to an increased interest rate difference.
Following Shinhan Bank’s reduction of the spread, other major banks like KB Kookmin Bank, Hana Bank, and Woori Bank are expected to follow suit. This is because the demand for household loans could shift to banks with lower rates. Major banks are monitoring the market situation.
The decrease in household loans since the beginning of the year is also a background factor for the change in interest rate policy. As of the 9th, the balance of mortgage loans at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 578.4379 trillion won, down by 256 billion won from the end of the previous month.
With the new year, new total loan limits are being applied. Major banks are relaxing loan regulations that were temporarily implemented in the latter half of last year. Restrictions on mortgage limits and refinancing loans have been eased. Shinhan Bank has decided to lift the 2 billion won limit on mortgages for living stability purposes from the next day and to allow the disposal of existing homes on the same day of jeonse loan processing.
A bank official stated, “When a specific bank adjusts its spread, demand generally concentrates there, and this trend spreads across the banking sector. It will likely be the same this time as well. However, financial authorities are concerned about a rapid increase in household loans at the beginning of the year, so some degree of adjustment may also occur.”