The gap in deposit interest rates between commercial banks and savings banks is rapidly narrowing. While commercial banks have been raising their deposit rates in response to increases in the benchmark and market interest rates, savings banks, which had been focused on securing deposits until last month, are now lowering rates due to a lack of suitable investment opportunities.
According to the Korea Federation of Banks, the average interest rate for one-year time deposits at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) was 3.23% as of September 7, up 0.32 percentage points from 2.91% on July 15.
In contrast, savings banks are experiencing a decline in deposit rates. The Korea Savings Bank Association reported that the average interest rate for one-year time deposits at 79 savings banks nationwide was 3.72% as of the previous day, down 0.21 percentage points during the same period. Some high-interest products that exceeded 4.5% last month have now dropped to around 4.00% to 4.05%.
As a result, the interest rate gap between major commercial banks and savings banks has shrunk from 1.02 percentage points to 0.49 percentage points. Despite the Bank of Korea raising the benchmark interest rate twice, the deposit rates of the two sectors are moving in opposite directions.
The differing rate strategies of the two sectors stem from variations in funding conditions. Commercial banks are raising time deposit rates to secure stable funding for lending amid rising market interest rates and increased costs of market-based funding, such as bank bonds. With financial authorities adjusting household loan management goals and promoting inclusive and productive finance, the demand for funds is also growing.
On the other hand, savings banks are finding it difficult to engage in aggressive lending due to total loan management and the fallout from real estate project financing (PF) failures. Even if they attract deposits with high interest rates, they cannot effectively utilize these funds for loans, leading to increased interest cost burdens. For savings banks, which urgently need to manage soundness and profitability, there is little reason to maintain high-interest time deposits.
Last month, the rapid increase in deposit rates by savings banks was more about securing temporary liquidity than a long-term deposit competition. As savings banks secured the necessary funds, they are now lowering rates to reduce the cost burden associated with additional funding, quickly narrowing the gap with commercial banks.
Instead of lowering time deposit rates, savings banks are promoting demand deposit products, such as parking accounts with interest rates up to 7%, to prevent customer attrition. They attract customers with high rates while managing actual funding costs by segmenting the limits and preferential conditions for interest application.
However, parking accounts can be withdrawn at any time, limiting their effectiveness as a stable funding source. If the benchmark interest rate rises further and competition for deposits intensifies in the financial sector, savings banks may face the dual challenge of needing to raise deposit rates again while managing funding costs.
A savings bank official stated, “There are not many places to invest the secured funds, so the more we raise deposit rates, the greater the cost burden becomes. Balancing liquidity management and profitability defense will be the biggest challenge for the time being.”
* This article has been translated by AI.
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