5% Fixed Deposits and Household Loans Gradually Disappearing
Current 5 Major Banks Offer Fixed Deposit Rates in the 3% Range
Internet Banks Also Provide Mortgage Loans in the 3% Range
Applications for the preferential Safe Conversion Loan, which converts variable-rate mortgage loans to long-term, fixed rates starting at an annual rate of 3.7%, began on the 15th. On that day, a bank in downtown Seoul was quiet. Photo by Moon Honam munonam@
[Asia Economy Reporter Sim Nayoung] As interest rates at domestic banks decline, fixed deposits with annual interest rates in the 5% range and household loans are disappearing. The benchmark bank bond rates, which banks use as a reference when setting deposit and loan interest rates, have fallen, and with pressure from financial authorities, the previously soaring rates are now decreasing.
According to the Bank of Korea Economic Statistics System on the 8th, the proportion of fixed deposits with 5% interest among newly accepted deposits at deposit banks in December last year was 17.0%, nearly 10 percentage points lower than the previous month (27.9%). Instead, the 4% range increased by about 10 percentage points (November 35.6% → December 54.1%). A commercial bank official said, "In November last year, due to the aftershock of Legoland causing instability in the bond market, banks were unable to issue bank bonds and tried to raise funds through deposits, raising fixed deposit interest rates up to 5%."
Then, when financial authorities signaled a rate cut, stating that banks were engaging in overheated competition on fixed deposit and installment savings rates, attracting all market funds, the 5% range products quickly disappeared. As of the 8th, the representative fixed deposit interest rates of the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) are all in the 3% range. For one year, KB Star Fixed Deposit is 3.48%, Shinhan Solpyeonhan Fixed Deposit 3.55%, Hana Fixed Deposit 3.6%, Woori WON Plus Deposit 3.62%, and NH All One e-Deposit 3.38%.
The proportion of loans with 5% interest rates is also slowing down. In December last year, the proportion of household loans with 5% interest among newly accepted deposits at deposit banks was 30.1%, down 7 percentage points from the previous month (37.1%). Like fixed deposits, this decreased proportion shifted to the 4% interest rate range (November 28.6% → December 36.2%).
As of the 8th, the five major banks’ mortgage loans have variable rates ranging from 4.86% to 6.89% and fixed rates from 4.08% to 6.18%. Internet banks offer even lower rates. K-Bank announced on the 6th that the fixed-rate hybrid mortgage loan product rates range from 3.98% to 4.98% annually.
Compared to November last year, when COFIX showed a record increase and mortgage loan rates at banks were in the 5-7% range, recent rates have stabilized. Another bank official said, "With recent declines in deposit rates and bank bond rates, COFIX is likely to be lowered on the 15th. The financial sector also expects the Bank of Korea to keep the base rate unchanged this month, so there will likely be no sudden rate fluctuations for the time being."
Meanwhile, on the 6th, Financial Supervisory Service Governor Lee Bok-hyun responded at a press briefing to criticism that ordering banks to lower fixed deposit and loan interest rates offsets the effect of the Bank of Korea’s monetary policy, which had continued raising the base rate until January this year. He said, "The public has already individually felt the effects of the rate hikes, and since the second half of last year, the economy has been worsening due to consumption contraction. The authorities’ position is that it is not a concern that the rate hike effect is absent."
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