Banks set to jack up lending rates after US rate hike

South Korean banks are poised to raise their lending rates after the key interest rate in the Unites States reached the 2 percent range, market sources said Sunday.

As widely expected, the US Fed raised its rate by a quarter of a percentage point to a range of between 1.75 percent and 2 percent last week, signaling that two more rate increases may be on the cards this year.

According to the sources, COFIX, a benchmark lending rate for mortgage loans, was 1.82 percent for new loans as of Saturday, up 0.03 percentage point from the previous month and the highest level in 18 months.

The COFIX rate for outstanding loans came to 1.83 percent, also up 0.03 percentage point and the highest level in nine months.

The increase in COFIX is expected to prompt domestic banks to mark up their mortgage loans.  

(Yonhap)

Major lender Kookmin Bank said it will increase its rates on outstanding COFIX-linked home-backed loans by 0.03 percentage point to up to 4.72 percent, with the rates on new loans likely to range from 3.33 percent to 4.53 percent.

Industry sources said other commercial lenders are set to follow suit.

Rising bank lending rates are feared to increase the debt servicing burden of local households, especially those in the low-income bracket.

According to a central bank estimate, a 0.25 percentage point increase in bank lending rates would raise the household interest burden by 2.3 trillion won ($2.1 billion).

Experts expressed concern that rising lending rates may make some bank loans turn sour as they follow a recent decline in household income. (Yonhap)