[Chanbap Deposit] ① Interest Rates in Stagnation... 70% Decrease in Time Deposit Subscriptions

# O Juhwan (32), an office worker in the Seoul metropolitan area, is currently contemplating how to utilize a lump sum of about 10 million KRW, which he saved from year-end bonuses and other sources. If it had been last year, he would have signed up for a fixed deposit product at a commercial bank without hesitation, but recently, with deposit interest rates remaining stagnant, he worries it might be a 'loss.' Mr. Oh said, "I'm debating whether to hold onto the lump sum and enter the stock or virtual asset markets, or to put it into a long-term product," adding, "Ordinary fixed deposit products don't seem very attractive." Fixed deposit products at commercial banks are being treated like 'cold rice' by financial consumers. This is because the deposit interest rates, which rose rapidly last year, have fallen back to the base rate level (3.5%), diminishing their appeal as investment options.

According to the financial sector on the 27th, the total amount of new fixed deposit subscriptions at the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) as of the 21st was 19.8641 trillion KRW. This is about half compared to the previous month (36.7715 trillion KRW) and represents a 73.0% decrease compared to the peak in October (73.7642 trillion KRW). The number of subscriptions also dropped significantly to 405,795 cases, down 74.3% from the peak (1,581,782 cases).

The frequent movement of interest rate nomads?customers who repeatedly cancel and subscribe to fixed deposits across financial institutions for a mere 0.1 percentage point difference?has subsided, leading to a sharp decline in both the amount and number of early fixed deposit cancellations. The early cancellation amount at the four major banks fell from 28.1441 trillion KRW in October last year to 3.5703 trillion KRW this month, and the number of cancellations dropped from 653,814 to 113,492 cases, a decrease of 87.3% and 82.6%, respectively.

The sharp decline in new fixed deposit subscriptions and early cancellations is due to the 'cooled-off' deposit interest rates at commercial banks. In early November last year, the one-year fixed deposit interest rate at commercial banks rose to the low 5% range but has recently plummeted repeatedly to the level of the Bank of Korea's base rate (3.50% as of the 21st).

According to the Korea Federation of Banks, as of the 22nd, the base interest rates for one-year fixed deposit (simple interest) products at the four major banks range from 2.60% to 3.70%, and except for Woori Bank's 'WON Plus Deposit' product, they fall below the base rate. Even with the highest preferential rates applied, these products offer only 3.55% to 3.70%, exceeding the base rate by a mere 5 to 20 basis points (1bp = 0.01%).

The cooling of deposit interest rates is due to improved bank funding conditions. First, the benchmark rate for one-year fixed deposits, the one-year bank bond rate (AAA rating), stood at about 3.830% as of the 22nd. Although it has risen from the year's low (3.564%), it remains significantly lower than the over 5% level seen in early November last year.

In the second half of last year, the so-called 'Legoland incident' caused bond market tightening, leading to fierce competition among financial institutions to attract deposits. However, with regulatory intervention stabilizing the bond market and banks resuming bank bond issuance for refinancing purposes, the incentive to raise deposit interest rates has disappeared.

The weakening demand for funds from banks has also contributed. Household loans are decreasing due to the real estate market downturn, and with the extension of the liquidity coverage ratio (LCR) regulation easing, banks have little reason to offer high interest rates to attract deposits.

A financial industry insider said, "For each commercial bank, given the large volume of deposits attracted during the period of rapid interest rate hikes, there is no need to push aggressively," adding, "Unless there are significant changes in the base rate or bond market, the possibility of deposit interest rate hikes like last year is low."