End of 'Nunchi Ssaum'... Commercial Banks Begin Full-Scale Deposit Interest Rate Cuts

[Asia Economy Reporter Kwon Haeyoung] Commercial banks have ended their waiting game and have begun to actively lower deposit interest rates. Despite the Bank of Korea's base rate cut in October last year, banks had delayed lowering deposit rates due to the loan-to-deposit ratio regulation and concerns over losing financial consumers, but they have started to reduce rates after four months.

According to the banking sector on the 26th, Shinhan Bank plans to lower the preferential interest rates on the 'Shinhan Main Transaction Future Planning Account' and 'Shinhan Main Transaction S20 Account' from the previous maximum annual rate of 1.5% to 1.25%, a 0.25 percentage point decrease, starting from the 21st of next month. The basic interest rate for savings deposits will be reduced by 0.1 percentage points from 0.2% to 0.1% per annum.

Woori Bank adjusted the interest rates on the 'WON Deposit' with rates ranging from 0.5% to 0.95% to 0.5% to 0.87%, and the 'Wibee Fixed Deposit' with a 1.4% rate to 1.1%, effective from the 10th. KB Kookmin Bank also lowered the interest rates on the 'Kookmin Super Fixed Deposit Unit Period Interest Rate Linked' (1 to 6 months) product from 0.7%?1.1% to 0.6%?1%, and the 'KB Kookmin UP Fixed Deposit' product from 1.35%?1.5% to 1.1%?1.3% per annum starting the same day.

IBK Industrial Bank reduced the interest rates on the 'IBK Plus Savings Deposit' from 0.1%?0.9% to 0.1%?0.7%, a maximum decrease of 0.2 percentage points, starting from the 21st. The 'IBK Plus Corporate Free Deposit' interest rate was lowered by 0.1 percentage points.

Earlier, NH Nonghyup Bank was the first to reduce deposit interest rates by up to 0.25 percentage points in December last year, two months after the Bank of Korea's base rate cut.

Typically, banks lower deposit interest rates about one to two weeks after the Bank of Korea's base rate cut, but this time most banks delayed the reduction for four months due to concerns over consumer attrition. The loan-to-deposit ratio regulation, which started this year and requires securing deposits, was also a reason for postponing the deposit rate cuts.

Additionally, with expectations that the Bank of Korea might cut the base rate on the 27th due to the spread of the novel coronavirus infection (COVID-19), banks also preemptively lowered deposit interest rates.