"When Will Deposit Interest Rates Rise?" Banks Hesitate Amid Authorities' Warnings

[Asia Economy Reporters Buaeri and Yujehun] #Lee Ji-hoon (35), an office worker living in the Seoul metropolitan area, intended to deposit a lump sum of 50 million won that matured earlier this month into a regular savings product at a commercial bank but instead placed it in a demand deposit account (parking account) for the time being. This was in anticipation of an interest rate hike on deposit products following the Bank of Korea's additional rate increase announced on the 24th. However, despite the base rate rising by 0.25 percentage points, commercial bank interest rates did not increase. Lee said, "I expected commercial banks to raise their rates for safety reasons, but it's disappointing," adding, "I might have to turn my attention back to sound savings banks or special promotional products from mutual finance institutions."

Although the Bank of Korea raised the base interest rate by 0.25 percentage points, news of interest rate hikes on bank deposits and savings remains quiet. This contrasts sharply with last month on the 12th when the Bank of Korea implemented a big step (a 0.5 percentage point increase in the base rate), and banks immediately competed to raise deposit rates.

According to the financial sector on the 25th, the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?are considering raising deposit rates but are cautious about taking the lead. A representative from one commercial bank said, "We are reviewing rate hikes but are also monitoring other banks' moves." Another commercial bank official commented, "In the past, it felt like everyone was trying not to be last, but this time it seems like everyone is trying not to be first."

Banks are holding back because financial authorities have repeatedly sent messages urging commercial banks to refrain from competing in raising deposit rates. After unofficially ordering the banking sector to avoid rate hike competition, on the 23rd, the Financial Services Commission and the Financial Supervisory Service emphasized again at the 'Financial Sector Fund Flow Monitoring and Communication Meeting' that "excessive competition among sectors to secure funds can lead to higher loan rates," and "since this could burden the economy, it is necessary to refrain from excessive competition."

The deposit rates of major commercial banks remain unchanged for now. KB Kookmin Bank's representative deposit product, KB Star Time Deposit, offers an interest rate of 4.82% for a one-year term, while Shinhan Bank's Solpyeonhan Time Deposit is at 4.95%, Woori Bank's WON Plus Time Deposit at 4.98%, Hana Bank's Hana Time Deposit at 5.00%, and NH Nonghyup Bank's NH All One e-Deposit at 5.10%, all maintaining previous levels.

Savings banks, which had been competitively raising deposit rates, have also been warned by authorities. According to the Korea Federation of Savings Banks, the average interest rate for regular deposits (12 months) stands at about 5.53% as of this date. Mutual finance institutions such as Saemaeul Geumgo and credit unions, known for high rates, are also watching the commercial banks' trends. Currently, 6% range deposit products are prevalent in Saemaeul Geumgo and credit unions. A mutual finance official said, "Recently, with more non-face-to-face products, we are competing with commercial banks as well," adding, "If commercial banks remain quiet, we expect a similar trend." However, high-interest special promotional products operated independently by cooperatives or individual branches are expected to continue for the time being. Since special promotions are temporary products and operated only at some branches, they do not significantly affect overall interest rates."