South Korean banks' lending rates climbed to the highest level in 18 months in July, due to effects from the central bank's rate hike in June, the Bank of Korea (BOK) said Wednesday.

   The average rate for new loans extended to households and companies stood at 5.86 percent in July, up 0.06 percentage point from the previous month, according to the BOK. The June rate marked the second straight monthly gain.

   The July reading marked the highest level since 5.94 percent tallied in January 2010.

   "The BOK's rate hike in June raised market rates and accordingly, lending and deposit rates have been on the rise," said Moon So-sang, an official at the BOK.

   In June, the BOK hiked the key rate by a quarter percentage point to 3.25 percent to tame inflation. The central bank raised the borrowing costs in January, March and June.

   According to the BOK, the average rate for household loans slipped 0.01 percentage point to 5.46 percent, while the rate for corporate loans jumped 0.09 percentage point to 5.98 percent.

   In July, market rates for certificates of deposit, which are tied to banks' mortgage lending rates, gained 0.13 percentage point to 3.84 percent.

   The rate on mortgage loans, which account for the bulk of banks' household lending, rose 0.03 percentage point to 4.9 percent last month, the BOK added.

   Reflecting rising market rates, the average rate on bank deposits reached 3.79 percent last month, up 0.09 percentage point from June and the highest level since 3.87 percent in January 2010.

   South Korean lenders' loan-deposit spread, a gauge of banks' profitability from lending, came in at 3 percent last month, down 0.01 percentage point from June, the BOK said.

   Meanwhile, the average rate on loans extended by savings banks jumped 2.43 percentage points on-month to 17.5 percent in July, as problems from soured construction loans prompted them to increase the weight of household loans.

Source: Yonhap News (August 31, 2011)