Seoul: Banks' overall loan rates experienced a slight decrease in October, despite an increase in mortgage rates for the first time in ten months, as the central bank continued its monetary easing cycle. This was revealed by data released on Wednesday.
According to Yonhap News Agency, the average interest rate on new bank loans dropped to 4.02 percent last month, a decrease of 0.01 percentage point from September, based on statistics from the Bank of Korea (BOK). The data detailed that corporate loan rates fell by 0.03 percentage point to 3.96 percent in October, marking a continuous decline for the fifth month in a row.
Conversely, the rate on new household loans increased by 0.07 percentage point to 4.24 percent, recording the first rise since December of the previous year. Home-backed mortgage loans saw a rise of 0.02 percentage point to 3.98 percent, while jeonse loans also increased by 0.02 percentage point to 3.78 percent. Meanwhile, credit loan rates witnessed a decrease of 0.12 percentage point, settling at 5.19 percent.
A BOK official commented, "The share of general credit loan rates, which carry relatively higher interest rates, expanded, leading to an overall rise in household loan rates." Jeonse, a unique housing rental system in South Korea, requires tenants to make a large lump-sum deposit, which is fully returned at the lease's end.
The government introduced stricter lending rules for home purchases to address the overheated property market and control household debt, which led to the increase in mortgage rates.
Furthermore, the average rate banks offer for fresh deposits rose by 0.05 percentage point to 2.57 percent in October, continuing a two-month upward trend. The difference between banks' outstanding lending and deposit rates narrowed by 0.01 percentage point to reach 2.18 percentage points last month.
The BOK initiated its monetary easing cycle in October 2024, reducing the key interest rate by 0.25 percentage point to 3.25 percent. The rate has since been lowered to 2.5 percent to bolster economic growth. During its most recent rate-setting meeting, the central bank maintained the benchmark rate for the third consecutive meeting to ensure financial stability amid rising household debt and the uncertainties caused by U.S. tariff policies. The next policy meeting is scheduled for Thursday.