Limited External Funding Options
Average Deposit Interest Rate 3.98%... Slight Upward Trend
Mutual savings banks, which are experiencing continuous capital outflows, are competing to raise deposit interest rates on demand deposit accounts (commonly known as 'parking accounts').
According to the Bank of Korea on the 29th, as of March, the deposit balance of savings banks was recorded at 116.0431 trillion won. This represents a decrease of about 2.5% (approximately 2.9 trillion won) compared to the previous month and about 3.5% (approximately 4 trillion won) compared to the previous quarter.
The decline in deposit scale in the savings bank sector is due to falling deposit interest rates. Financial authorities requested the financial sector to refrain from raising deposit interest rates, and as market interest rates stabilized downward, the average deposit interest rate of savings banks, which reached the 5% range at the end of last year, fell to the 3% range by the end of March.
The decrease in deposits is a considerable blow to the savings bank sector. Unlike commercial banks, which have other funding sources such as bank bond issuance, savings banks are limited to deposits and savings as their funding sources. Accordingly, savings banks are responding to the decline in deposits by raising deposit interest rates. According to the Korea Federation of Savings Banks, as of this date, the average interest rate on one-year fixed deposits at savings banks rose by 0.11 percentage points from the previous month to 3.98%, approaching the 4% range.
Interest rates on parking accounts, which can be considered core deposit products, are also on the rise. Pepper Savings Bank launched the 'Pepper Parking Account 3,' which pays an annual interest rate of 3.8% on deposits up to 50 million won. KB Savings Bank introduced the 'Kiwi Pang Pang Account,' offering an annual interest rate of 3.0% on deposits up to 100 million won, and up to 3.5% including preferential rates. Daol Savings Bank also released the 'Fi Asset Management Account,' which offers an annual interest rate of 3.8% for deposit balances of 300 million won. This product provides an annual interest rate of 2.6% if the deposit balance is less than 300 million won.
A financial industry official said, "Savings banks, which lack alternative funding sources besides deposits, have typically maintained interest rates about 1% higher than commercial banks to attract funds," adding, "The decrease in deposits can lead to liquidity difficulties, so they are adjusting interest rates again."
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