KB Kookmin Bank is expected to intensify competition for deposits as it has added time deposits to its key performance indicators (KPI) for the second half of the year. With the Bank of Korea raising its benchmark interest rate, market interest rates are increasing, leading banks to seek relatively stable deposit sources.
According to the financial sector on August 12, KB Kookmin Bank has newly included personal and corporate time deposits in its KPI announced earlier this month. This temporary measure will reflect the performance of branch offices and employees in attracting time deposits until the end of the year, aiming to proactively secure deposits.
Other banks are also working to attract customers by raising deposit interest rates. Shinhan Bank, which had suspended special time deposit products for two years, is currently running its sixth special offer this year. The maximum interest rate has increased from 3.1% in the first special offer to 3.5% in the fifth and sixth offers, a rise of 0.4 percentage points.
Woori Bank has launched the 'Our Wish Time Deposit' to commemorate the 150th anniversary of the birth of Kim Gu and Liberation Day, offering a maximum interest rate of 3.4% for a December maturity. Hana Bank raised the base interest rates of 14 deposit products, including six types of time deposits and seven types of savings accounts, by 0.2 to 0.3 percentage points at the end of last month.
While banks are employing various strategies, from branch evaluations to special offers and interest rate hikes, they are mobilizing all means to secure deposits.
The push for time deposits is driven by the need to establish a stable funding base proactively. Unlike demand deposits, time deposits tie up funds for a specified period, reducing the risk of fund outflows and making it easier for banks to predict the scale and maturity of their funding. This is also significant as it allows banks to secure stable deposits that can be used for future lending.
The increased reliance on market-based funding in the banking sector is another factor contributing to the competition for deposits. While banks are raising funds through bond issuances, the rising market interest rates can increase their funding costs. In contrast to market-based funding, which can fluctuate based on financial market volatility, time deposits provide a more stable source of funding. In a situation where reliance on market-based funding has increased, banks are looking to secure more stable deposit sources.
The possibility of further increases in deposit interest rates due to the benchmark rate hike is also prompting banks to act. The Bank of Korea raised the benchmark rate from 2.50% to 2.75% last month. As banks prepare for the potential of higher deposit rates and increased market-based funding costs, competition to secure deposits is expected to continue.
A banking sector official stated, "In a situation where market interest rates are rising, deposit rates will inevitably follow suit, and the more unstable the flow of funds in the financial market, the more important it is for banks to secure a stable deposit base. This trend is likely to continue for the time being."
* This article has been translated by AI.
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