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Bank loan interest rates have risen, pushing the average rate on credit limit loans (overdraft accounts) at the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—above 5% annually for the first time in 1.5 years. Internet banks, which are required to handle a certain proportion of medium- and low-credit borrower loans, saw average rates approaching 7% annually. With market interest rates continuing to climb, the financial burden on borrowers using overdraft accounts for urgent funds or living expenses is expected to grow.

According to the Korea Federation of Banks on the 22nd, the average interest rate for new credit limit loans handled by the five major banks in July was 5.01% annually. This marked the first time the five-bank average exceeded 5% since January last year, when it stood at 5.24%. By bank, Hana Bank had the highest rate at 5.32%, followed by Woori Bank at 5.10%, Shinhan Bank at 5.09%, NH Nonghyup Bank at 4.93%, and KB Kookmin Bank at 4.59%.

The average rate at the three internet banks—Kakao Bank, Kbank, and Toss Bank—was 6.91% annually. Kakao Bank led at 7.74%, followed by Toss Bank at 6.66% and Kbank at 6.33%, all higher than the five major banks’ average. Assuming a 50 million Korean won loan over one year, the interest difference between 5.01% and 6.91% amounts to approximately 950,000 Korean won.

However, direct comparison of average rates between the five major banks and internet banks is challenging. Internet banks must maintain medium- and low-credit loan shares of at least 30% based on outstanding balances and 32% based on new loan volumes, while the five major banks face no such obligation. In July, the average credit score of new overdraft borrowers was 961 for the five major banks and 907 for internet banks, reflecting that internet banks extended more loans to borrowers with relatively lower creditworthiness.

Overdraft interest rates are likely to rise further. The six-month financial bond rate, a key benchmark for unsecured loan pricing, stood at 3.728% annually on the 21st, up 0.445 percentage points from the end of June. The 12-month financial bond rate also rose from 3.744% to 4.069% during the same period. Since most overdraft accounts use variable rates, market rate increases are reflected relatively quickly.

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