Rate Shock from the Middle East Increases Household Burden

Household loan rates have climbed by around 0.2 percentage points over the past two months, driven by the end of the Bank of Korea (BOK)'s rate-cut cycle and fallout from the Middle East crisis. This has raised concerns that the burden on individual borrowers who bought homes by stretching their finances to the limit or who invested using borrowed money could increase further.
According to the financial sector on the 15th, the mixed (fixed) mortgage rates at KB Kookmin Bank, Shinhan Bank, KEB Hana Bank and Woori Bank, based on five-year bank bonds as of the 13th, stood at an annual 4.250–6.504%.
Compared with January 16, when the range was 4.130–6.297% per year, the upper end has risen 0.207 percentage points and the lower end 0.120 percentage points in roughly two months. The key benchmark for fixed rates, the five-year bank bond yield, climbed from 3.580% to 3.860% over the same period, a gain of 0.280 percentage points. Market rates have been on an upward trend since the second half of last year as expectations for domestic and global policy rate cuts weakened. The recent turmoil in the Middle East has added to this, further strengthening the upward pressure on rates.
In practice, unsecured personal loan rates now stand at 3.930–5.340% per year for top-tier borrowers on a one-year term, with the lower end up 0.180 percentage points from two months ago. This reflects an increase of about 0.200 percentage points in the one-year bank bond yield, which serves as the benchmark. Variable-rate mortgage loans, based on the new COFIX (Cost of Funds Index) benchmark, are currently at 3.850–5.740% per year, with both the upper and lower ends rising 0.090 and 0.106 percentage points, respectively, over the same period.
The problem is that household lending is still growing, led by unsecured loans, even though rates are in an upward phase. Typically, when interest rates rise, higher interest costs dampen loan demand, but the recent trend is moving in the opposite direction.
Total household loans outstanding at the five major banks—KB Kookmin Bank, Shinhan Bank, KEB Hana Bank, Woori Bank and NH Bank—reached 766.5501 trillion won as of the 12th, up 684.7 billion won from the end of February. Mortgage balances fell by 830.2 billion won due to various government real estate regulations, but unsecured loans surged by 1.4327 trillion won, driving the overall increase. If this pace continues, unsecured loans could post their largest monthly gain in four years and eight months, since July 2021, when they rose by 1.8637 trillion won.
In particular, the actually drawn balances on personal overdraft accounts have expanded by 1.3114 trillion won so far this month. This growth has continued despite warnings from the financial authorities against leveraged investing with borrowed funds. The increase has already exceeded the 1.2979 trillion won rise recorded as of the 5th.
A financial industry official stated, "The recent increase in banks' unsecured lending appears to be mainly driven by transfers of funds to securities companies," adding, "In addition to bargain-hunting demand, there seem to be cases where investors bought stocks on credit from securities companies, then faced a margin call for additional collateral and turned to overdraft accounts and similar products to cover the shortfall."
coddy@fnnews.com Ye Byung-jung