INTEREST RATE HIKE FOR DEPOSIT HOLDERS

[Anchor Lead]

Banks have been raising their interest rates for deposit holders following a serious of key rate hikes by the central bank. However, this has lead to higher funding costs and subsequently to a heavier financial burden for those who have personal loans.

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This office worker has invested 30-million won in stocks.

[Soundbite] (Office worker) : "I am more inclined to deposit my money safely in banks rather than in stocks, because I don’t want to lose money anymore."

She now believes that depositing money in a bank is more profitable as interest rates on fixed deposits now surpass the mid-4 percent range.

[Soundbite] (Office worker) : "In Oct., banks’ interest rates have been going up overnight and there are many deposit products offering high interest rates."

Higher interest rates on bank deposits are the result of banks' efforts to secure funds as financial resources are running out due to worldwide austerity measures. However, this has led to a spike in interest rates on loans as well. With deposits being the major financial source for banks, higher interest on them means higher funding costs. This can be seen in the Cost of Funds Index, which has recorded 3.4 percent this month -- the highest in over ten years.

[Soundbite] Hwang Sei-woon(Korea Capital Market Institute) : "A raise in deposit rates is highly likely to push interest rates on various loans related to COFIX even higher."

COFIX is based on the floating interest rates of home loans, including jeonse loans. Interest rates on new home loans provided by commercial banks are now in the mid-6 percent range or higher, and the rates of existing loans are also rising. The repercussions of the BOK's decision to raise the key rate by half a percentage point on October 12 will be reflected in the COFIX next month. Interest rates on commercial bank loans are likely to soar yet again.