Deposit Interest Rates Declining, Approaching 4% Despite Base Rate Freeze

Rising Market Interest Rates and Government Criticism of 'Interest Profiteering'

Deposit interest rates at major commercial banks, which had been declining, have slightly risen to approach the 4% range despite the Bank of Korea's decision to keep the base rate unchanged.

According to the Korea Federation of Banks on the 5th, the one-year fixed deposit interest rates at the five major domestic commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) were recorded at 3.65?3.90%. This represents an increase of 0.2 percentage points at the upper end and 0.1 percentage points at the lower end compared to the rates on the 23rd, when the base rate was held steady (3.55?3.70%).

Until November last year, the upper limit of fixed deposit interest rates at commercial banks had exceeded 5%, but since the beginning of this year, they had remained around the 3% range. Last year, due to events such as the 'Legoland incident,' the bond market tightened, intensifying competition among financial institutions to attract deposits. However, around the start of this year, the bond market stabilized due to regulatory intervention, and banks resumed issuing bank bonds for refinancing purposes, removing incentives to raise deposit interest rates.

The recent upward trend in commercial bank deposit interest rates is primarily attributed to the rise in market interest rates. According to the Korea Financial Investment Association's Bond Information Center, the one-year bank bond rate (AAA grade), which serves as the benchmark for one-year fixed deposit rates, stood at approximately 3.934% as of the 3rd, up 0.370 percentage points from the year's low of 3.564%. Although this is lower compared to early November last year when rates briefly exceeded 5%, it still reflects an upward trend.

Criticism from financial authorities regarding 'profiteering from interest' also appears to have played a role. Recently, regulators and politicians have repeatedly pointed out that while banks maximize profits by exploiting the interest rate spread during periods of rising rates, they have been lukewarm about raising deposit rates. In fact, as of the end of last month, the balance of fixed deposits at the five major commercial banks increased by KRW 3.4506 trillion, while household loan balances decreased by KRW 3.1972 trillion. This means banks have little incentive to secure deposits by raising deposit interest rates.

On the 9th, when major commercial banks lowered their fixed deposit interest rates from the 5% range to the 4% range, the fixed deposit interest rates were displayed on the electronic board at the entrance of a bank in Seoul. Photo by Jinhyung Kang aymsdream@