'Room to Spare but Wary of Spillover'... Regional Banks Raise Mortgage Loan Rates

Regional Banks Raise Mortgage Rates This Month

Growth Targets Higher Than Major Banks,

But Smaller Loan Balances Could Mean Quick Surpasses of Limits

As the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) and three internet-only banks (Kakaobank, Toss Bank, K Bank) have strengthened their management of household loans, including mortgage loans and credit loans, regional banks are also moving to block the so-called 'balloon effect' by suspending preferential rates on mortgage loans and raising interest rates.

According to the financial sector on July 5, iM Bank's mortgage loan rates (six-month adjustable) stood at 5.30–5.80% as of June 30, but as of July 2, both the lower and upper ends had increased by 0.06 percentage points to 5.36–5.86%.

BNK Kyongnam Bank, which stopped offering credit loans through external platforms last month, has also discontinued the special preferential rates on mortgage loans for new applicants starting this month.

Reflecting this change, BNK Kyongnam Bank's mortgage loan rates as of June 30 were 5.19–5.69% (five-year fixed) and 4.52–5.12% (six-month adjustable). From July 1, these rates rose to 5.59–6.19% and 4.92–5.59%, respectively. The five-year fixed rate saw both the lower and upper ends rise by 0.40 percentage points, while the six-month adjustable rate increased by 0.40 percentage points at the lower end and 0.47 percentage points at the upper end.

Gwangju Bank also adjusted its mortgage loan rates from 4.41–7.36% to 4.49–7.46% this month, with the lower end up by 0.08 percentage points and the upper end by 0.10 percentage points.

Yonhap News Agency

The main reasons regional banks are discontinuing preferential rates and raising mortgage loan rates are the rise in the five-year financial bond rate, which serves as the benchmark for fixed-rate mortgage loans, and increased concerns that stronger household loan management at commercial and internet-only banks could drive mortgage loan demand to regional banks.

NH Nonghyup Bank has restricted eligibility for mortgage insurance since May, and KB Kookmin Bank also joined in suspending mortgage insurance on June 26. Hana Bank and Woori Bank have each lowered the maximum credit loan limit to 100 million won, while Shinhan Bank has reduced the limit for revolving credit lines by 20% upon maturity extension, all measures aimed at tightening household loan management.

The three internet-only banks have also reduced the limits on credit loans and revolving credit lines and have restricted certain new loan offerings.

This year’s target for household loan growth at regional banks is set at an average of 4%, higher than that of commercial banks, leaving some room to grow. However, since the total outstanding household loans at regional banks is relatively small, a sudden surge in mortgage loan demand could quickly push them over their annual target.

As of the end of the first quarter, the combined household loan balance of the five major regional banks (Busan, Kyongnam, Gwangju, Jeonbuk, and iM) stood at 74.3844 trillion won, up 1.9% from 72.6953 trillion won at the end of last year. This total is less than one-tenth of the 765.729 trillion won in household loans held by the top five commercial banks over the same period.

A representative from one regional bank said, "The outstanding household loans at regional banks are so much smaller than those at a single major commercial bank that if the balloon effect occurs, the annual target can easily be exceeded. If a surge in loan demand, including mortgages, becomes apparent in the second half of the year, we will have to introduce stronger household loan management measures."

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