The financial market is experiencing a shake-up as the traditional order of lending and deposit rates is disrupted. Typically, borrowers with higher credit scores receive lower interest rates, while longer deposit terms yield higher rates. However, changes in lending practices due to household loan management and inclusive finance policies have led to a phenomenon of 'interest rate reversal' across various financial products.
According to the Korea Federation of Banks, among 18 banks, 12 reported lower average interest rates for household loans in June for borrowers with lower credit scores. For instance, K Bank offered an average rate of 5.47% for borrowers with scores below 600, which is 0.60 percentage points lower than the 6.07% average for those with scores between 801 and 850. This trend contradicts the usual expectation that lower credit scores result in higher rates.
A similar trend is observed in the capital industry. Among 12 capital companies offering mid-interest credit loans in the second quarter, five reported lower average rates for borrowers with lower credit scores. Lotte Capital's average rate for borrowers in the 400s was 11.30%, which is 1.24 percentage points lower than the 12.54% average for those in the 800s. Industry experts attribute these changes to the expansion of inclusive finance and mid-interest loans, as well as the management of loan portfolios by financial institutions.
Not only loans but also banks' funding strategies are deviating from established norms. The five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) are offering higher interest rates for one-year time deposits compared to three-year deposits. KB Kookmin Bank and Hana Bank have set the one-year deposit rates 0.8 percentage points higher than those for three-year deposits.
Traditionally, longer deposit terms yield higher interest rates, but recent regulations on household loans have restricted the typical avenues for long-term fund management, such as mortgage loans. As banks find it challenging to increase long-term loans, their incentive to secure long-term deposits at higher rates has diminished.
A bank official stated, "According to market logic, longer deposits should yield higher rates, but banks lack suitable investment opportunities for long-term funds. Since they cannot indefinitely increase mortgage loans, the incentive to actively secure long-term deposits is also low."
As household loan management becomes stricter, variations in loan approval thresholds are emerging even among borrowers with similar conditions, depending on when they apply. This is due to financial institutions adjusting their lending capacity based on their annual loan growth targets and remaining limits.
Major commercial banks have already begun to reduce mortgage loan limits or halt new approvals. KB Kookmin Bank has lowered its mortgage loan limit from 600 million won to 300 million won. In internet-only banks like Kakao Bank, the competition has intensified, with daily limits quickly exhausted as mortgage applications open at 6 a.m.
A financial industry source remarked, "As lending regulations tighten, the timing of loan applications can significantly affect outcomes, leading to a situation where loans are almost determined by chance."
* This article has been translated by AI.
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