South Korean Bank Lending Rates Rise in June as Expectations of Rate Hikes Grow

Lending rates at South Korean banks rebounded in June as expectations of higher interest rates strengthened, according to data released by the Bank of Korea (BOK) on Tuesday.

The weighted average interest rate on new bank loans rose by 0.12 percentage points from the previous month to 4.31% in June, reversing a slight decline of 0.01 percentage point recorded in May. The increase reflects growing market anticipation of tighter monetary policy by the central bank.

Earlier this month, the Bank of Korea raised its benchmark policy rate by 25 basis points to 2.75%, marking a shift toward monetary tightening after maintaining an accommodative stance for about three and a half years since January 2023.

Corporate borrowing costs recorded a notable increase during the month. The average interest rate on new corporate loans climbed 0.14 percentage points to 4.27%. Lending rates for large corporations rose 0.07 percentage point to 4.17%, while rates for small and medium-sized enterprises (SMEs) increased more sharply by 0.23 percentage point to 4.38%.

Household borrowing also became more expensive in June. The average lending rate for new household loans increased 0.04 percentage point to 4.50%. Mortgage loan rates edged up 0.04 percentage point to 4.36%, while unsecured credit loan rates registered a steeper increase of 0.23 percentage point, reaching 5.72%.

Deposit rates also moved higher, reflecting the broader rise in interest rates across the banking sector. The weighted average rate on new bank deposits increased 0.15 percentage point from the previous month to 3.08% in June.

The latest data indicate that borrowing costs are rising across both corporate and household sectors as financial markets adjust to the Bank of Korea's renewed tightening cycle, with expectations that higher policy rates could continue to push up lending and deposit rates in the coming months.