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Local banks' credit loan rates rise at fast clip

All News 09:10 July 02, 2018

SEOUL, July 2 (Yonhap) -- South Korean banks' lending rates on unsecured loans have been rising at a fast clip in recent months, central bank data showed Monday, raising concerns over a possible rise in defaults.

The average risk-weighted rate on new credit loans came to 4.56 percent in May, up from an all-time low of 3.78 percent in August last year, according to the data from the Bank of Korea.

In contrast, the average lending rate on new home-backed loans increased to 3.49 percent from 3.28 percent during the same period.

The jump in unsecured loan rates was attributed to an uptrend in market interest rates, influenced by rate hikes by the BOK and foreign central banks.

The benchmark yield on gilt-edged, six-month bonds issued by financial institutions stood at 1.783 percent on May 31, 2018, compared with 1.396 percent on Aug. 1, 2017.

KB Kookmin Bank registered the highest increase in credit loan rates among domestic lenders. KB Kookmin's lending rate on new unsecured loans reached 3.96 percent in June this year, up from 2.71 percent in September last year.

The corporate logos of South Korea's four major banks (Yonhap)

Citing economic recovery, the BOK hiked its key rate to 1.5 percent from 1.25 percent in November last year, the first rate rise in more than six years, citing economic recovery. The U.S. Fed has conducted two rate increases this year, jacking up its rates to between 1.75 percent and 2 percent.

Market watchers voiced worries that the upturn in credit loan rates may result in an increased amount of soured loans down the road.

According to the BOK data, lending rates for borrowers with mid-level credit risks have increased by a wide margin over the cited period.

On top of rising lending rates, the amount of unsecured loans has also been going up in recent months as homebuyers turn to credit lending amid tighter regulations on mortgages.

According to separate data by the central bank, unsecured loans extended by banks and non-bank lenders grew by 16.7 trillion won (US$15 billion) between the third quarter of last year and the first quarter of 2018.

Late last month, the nation's financial regulator said it will step up monitoring of financial institutions' credit loans in a pre-emptive move to prevent defaults.

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