South Korean Banks Scramble to Lower Mortgage Rates Amid Growing Criticism

South Korean banks, led by top lenders Kookmin Bank and Industrial Bank of Korea, have rapidly reduced mortgage rates in a bid to alleviate the financial burden on households. This move comes as the banks face mounting criticism for maintaining high spreads on mortgage loan rates despite reduced funding costs following the global financial crisis. The Bank of Korea's (BOK) rate cuts have led to record-low borrowing costs, which, however, have not been reflected in mortgage lending rates, leaving consumers to bear the brunt of high interest rates.

Key Takeaways:

• Kookmin Bank will cut the rate on home-backed loans by up to 0.3 percentage point starting Monday, while Industrial Bank of Korea reduced the rate by 0.5 percentage point in early January.
• Other banks, including Woori Bank and Shinhan Bank, have followed suit in reducing mortgage rates.
• The BOK cut the benchmark seven-day repo rate by a total of 3.25 percentage points to a record low of 2 percent between October 2008 and February.
• Record-low borrowing costs have brought down market rates, including the yield on certificates of deposit (CDs), but mortgage lending rates remained high until the banks' recent rate cuts.
• According to the BOK, home-backed lending rates reached 5.9 percent in October, a 10-month high.
• South Korean banks plan to link their mortgage rates to wider funding sources, including bank bonds and time deposits, to reduce sharp swings in lending rates.

Statistics:

• Kookmin Bank's rate cut: up to 0.3 percentage point
• Industrial Bank of Korea's rate cut: 0.5 percentage point
• BOK's total rate cuts: 3.25 percentage points
• BOK's benchmark repo rate: 2 percent (record low)
• Home-backed lending rate (October): 5.9 percent (10-month high)
• Increase in home-backed lending rate from previous month: 0.13 percentage point

Sources:

• Asia Pulse, "South Korean banks scramble to lower mortgage rates," Jan 13
• Yonhap, "Local banks to link mortgage rates to wider funding sources," Jan 13
• Bank of Korea (BOK), "Interest Rates and Inflation," available at [1]
• Kookmin Bank (KSE:060000), website