Corporate Loan Rates Fall Below Mortgages, Low Credit Borrowers Get Better Terms Than High Credit: Interest Rate Distortions Deepen

Low-Credit Borrowers Receive Lower Interest Rates Than High-Credit Borrowers
Corporate Loan Rates, Despite Higher Risk, Fall Below Mortgage Rates
Impact of "Productive Finance" and "Inclusive Finance" Expansion

The core financial policy direction of the Lee Jaemyung administration-centered on "productive finance" and "expansion of inclusive finance"-is intensifying interest rate distortions. There have been cases where borrowers with lower credit scores are offered lower interest rates than those with higher credit scores. Additionally, an unusual phenomenon has emerged in which corporate loan interest rates fall below those of mortgage loans, which are generally considered safer due to solid collateral. Experts point out that financial regulations are creating a distorted financial order.

According to the Bank Federation's October statistics on interest rates for newly issued mortgage loans (installment repayment, maturities of 10 years or more) by credit score, all five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) offered lower interest rates to borrowers with credit scores of 600 or below compared to those with scores between 601 and 610.

By bank, NH Nonghyup Bank offered a 4.93% interest rate to borrowers with credit scores of 600 or below, which was lower than the 5.16% rate for those with scores between 601 and 650. This interest rate distortion was also seen in the 651-701 score range, where borrowers with scores between 651 and 700 received a lower rate (4.54%) than those with scores between 701 and 750 (4.58%). Shinhan Bank also applied a lower rate to borrowers with credit scores of 600 or below (3.67%) than to those with scores between 601 and 650 (4.54%). Woori Bank showed a similar pattern, with borrowers with scores of 600 or below receiving a 4.59% rate, compared to 4.64% for those in the 601-650 range. Hana Bank also offered a lower rate to borrowers with scores of 600 or below (4.25%) than to those with scores between 601 and 650 (4.29%), and the rate for the 701-750 group (4.23%) was lower than for the 751-800 group (4.29%). The 4.23% rate was on par with rates offered to borrowers with scores between 851 and 900. KB Kookmin Bank also applied a lower rate to borrowers with scores of 600 or below (4.33%) than to those in the 601-650 range (4.80%). The feared "reverse discrimination" in credit scoring has materialized.

A banking sector representative explained, "Since mortgage loans make up the largest portion of household lending, this was an unavoidable measure to curb the growth of mortgage lending."

Interest rate distortions have also been observed between corporate loans and mortgage loans. Typically, mortgage loans, which carry lower default risk, have lower interest rates than corporate loans. However, due to the banking sector's competitive expansion of corporate lending in line with the government's productive finance policy, this trend has reversed. According to the Bank of Korea, the corporate loan interest rate in September stood at 3.99%, dropping into the 3% range for the fourth consecutive month. Among these, the general corporate operating loan rate fell to 4.03% in July, below the variable mortgage loan rate of 4.05%. This reversal continued in both August and September.

Corporate loans being cheaper than mortgage loans was observed not only among large corporations but also among small and medium-sized enterprises. According to the Bank Federation, the average interest rate for secured SME loans at the five major banks between July and September ranged from 3.82% to 3.99% per annum, which was 0.2 to 0.31 percentage points lower than the average mortgage loan rate of 4.02% to 4.30%.

This rare phenomenon is largely attributed to changes in the lending structure brought about by the current administration's expansion of "productive finance" and "inclusive finance." As financial authorities accelerate "productive finance," major banks have competitively expanded corporate lending, leading to a significant drop in corporate loan rates. In contrast, mortgage loan rates have remained high due to stricter total household loan regulations, which have kept additional interest margins elevated. The upper limit of variable mortgage loan rates at the five major banks has exceeded 6%, and some internet banks have surpassed 7%.

Kim Doha, a researcher at Hanwha Investment & Securities, commented, "While corporate loan rates fell by 0.03 percentage points, household loan rates rose by 0.07 percentage points. It is extremely rare for SME loan rates to fall below household mortgage loan rates."

This content was produced with the assistance of AI translation services.