Why South Korean Banks Aren’t Raising Deposit Rates as Money Moves Into Stocks

South Korean banks are facing a growing dilemma. As a strong stock market pulls money out of bank accounts, lenders are still reluctant to raise deposit rates, constrained by the government’s household-loan management stance and heightened uncertainty tied to the Middle East.
 
Banks typically respond to rapid fund outflows by raising rates on deposits and savings products. But with policy pressure to curb growth in household lending and external risks including the Middle East situation, increases in deposit and savings rates have remained limited.

Raising deposit rates would increase banks’ funding costs and could add pressure for higher loan rates. With financial authorities trying to restrain household lending, banks are wary that greater volatility in loan rates could clash with that policy direction.

Some banks are marketing products with high “maximum rates,” but the base rates are low or the top rates require meeting specific conditions. The approach is seen as a way to maintain competitiveness in attracting deposits without broadly lifting rates.

Woori Bank’s “Dugeun Dugeun Haengun Savings,” launched last year, advertises a maximum annual rate of 12.50%, but its base rate is only 2.50%. The remaining interest is paid only if customers win a monthly drawing for a “luck card.” Shinhan Bank’s “One Month Savings (Weekly) X Hyundai Motor” offers a base annual rate of 1.80% and a maximum of 8.80% including partnership preferential rates, but customers must meet conditions such as confirming a Hyundai Motor purchase contract, designating a card payment account, or reaching required payment rounds.

The same pattern applies to deposits. NH NongHyup Bank recently raised the one-year maximum rate on key time-deposit products — “NH All One e-Deposit” and “NH Waltz Rotating Deposit II” — into the 3% range. Other large banks are still keeping rates in the 2% range. Woori Bank raised the rate on its “WON Plus Deposit (12-month maturity)” last month, and KB Kookmin Bank and Hana Bank also made small increases, prompting expectations of broader competition. But aside from NH NongHyup Bank, no bank is offering a 3% rate.

As banks’ rate moves remain muted, money has continued to flow into stocks. Even as volatility has increased due to the Middle East situation, some investors have treated the swings as a buying opportunity. As of the previous day, time deposits at the five major banks totaled 944.1025 trillion won, down 2.7872 trillion won from the end of last month. Demand deposits, often viewed as funds waiting to be invested, fell to 676.2610 trillion won from 684.8604 trillion won over the same period, a drop of 8.5993 trillion won.

Market participants say deposit outflows could persist if the stock rally continues. Still, the financial sector also expects that if external uncertainty grows — including tensions in the Middle East — investors could shift back to bank deposits as a safer asset.

A commercial bank official said, “With external volatility so high, including Middle East risks, the top priority is to manage funding costs in a stable way,” adding, “Rather than forcing deposit rates higher to chase market moves, banks are likely to proceed cautiously, considering overall soundness and profitability.”