Commercial banks are pulling down their loan interest rates to the 1 percent range, after the government announced its low-rate mortgage plans.

The banking industry had been reluctant to break the 2 percent line for fear that the move might drive away deposit clients. But more banks are cutting their rates to attract more borrowers.

Last week, the nation’s No. 1 player Shinhan Bank adjusted the interest rate for Shinhan S-Dream, its most popular fixed deposit product, by 0.1 percentage point to 1.9 percent. This was the first time that the bank set a 1 percent range interest rate for a short-term savings product.

The rate for U-Dream, the mobile version of S-Dream, was also lowered to 1.9 percent.

Woori Bank took a similar action in January and pulled down the interest rate of its Woori Love fixed deposit from 2 percent to 1.9 percent.

“The range of fluctuation may be a mere 0.1 percent, but the 1 percent range definitely gives a different sentiment to clients, and this is why we held onto the 2 percent rate for as long as possible,” said a Shinhan Bank official.

“But we had to accept the rate cut in the end, so as to narrow the gap between loan interests and deposit rates and to avoid back margin status.”

Adding momentum to the banks’ rate cuts was the Ministry of Land, Infrastructure and Transport’s recent announcement that it would establish a housing mortgage loan with an interest rate of under 2 percent.

But banks are also concerned that the low interest rate may push clients to savings banks that still offer rates in the 2 percent range.

Other top banks, such as Kookmin KB Bank, Hana Bank and Industrial Bank of Korea, are expected to follow suit and cut their rates, especially if the central bank further lowers its key interest rate.

Since a record-low cut in October, the Bank of Korea’s key rate has been frozen at 2 percent but is likely to take another dip this year due to lower-than-expected consumer prices, driven down by low oil prices.

By Bae Hyun-jung (tellme@heraldcorp.com)