Tightening the Belt... Savings Banks Deposits Reach 4.5% Range

Savings products with mid-4% interest rates emerging one after another
Loans decreasing... Forced to accept high interest rates reluctantly

Savings banks are increasingly launching deposit products with mid-4% interest rates. Despite having to tighten their belts due to poor performance in the first quarter of this year, they are offering deposit products with 4% interest rates as commercial banks also provide similar products, which is interpreted as a reluctant move to control deposit balances.

According to the industry on the 20th, Daol Savings Bank launched the 'Fi Hybrid Time Deposit' yesterday, offering a maximum annual interest rate of 4.5%. Based on the disclosure by the Korea Federation of Savings Banks as of the previous day, this is the highest interest rate deposit product in the industry. The 4.5% interest rate applies as long as the maturity is maintained without any special preferential conditions. There is no maximum amount limit.

Notably, it also combines the characteristics of a parking account, which allows free deposit and withdrawal. Partial withdrawals up to three times during the deposit period (excluding maturity termination) are allowed, and the interest rate applied at that time is as high as 3.5%. Considering that regular time deposit products usually offer only about 0.1% to 70% of the contracted interest rate upon early termination, this is considered somewhat groundbreaking.

Other savings banks such as CK Savings Bank, Cham Savings Bank, and Sangsangin Savings Bank have also launched time deposit products with annual interest rates ranging from 4.42% to 4.45% to attract customers. Commercial banks like SC First Bank (maximum annual 4.10%) and BNK Busan Bank (maximum annual 4.00%) have also introduced time deposit products with 4% interest rates, prompting aggressive sales efforts to prevent deposit balance outflows. According to the Bank of Korea, the deposit balance of savings banks (based on month-end) decreased by more than 6 trillion KRW from 120.7854 trillion KRW in January this year to 114.6159 trillion KRW in April.

The problem is that the situation is not favorable enough to continue such aggressive deposit attraction strategies indefinitely. The net loss of 79 savings banks in the first quarter of this year reached 52.3 billion KRW, a sharp decline of about 500 billion KRW from the net profit of 456.1 billion KRW in the same period last year. This is the first time in nine years since the second quarter of 2014 that the entire industry's performance has turned to a net loss. Despite selling high-interest products compared to commercial banks amid continued high interest rates, profitability is challenged as loans, the only source of funds, have not increased. According to the Bank of Korea, the loan balance of savings banks decreased by about 3.5 trillion KRW from 115.6003 trillion KRW in January to 112.0879 trillion KRW in April.

An official from a savings bank explained, "The maximum loan interest rate is fixed and funding methods are limited, so the situation is difficult, but to prevent the situation from worsening, we have no choice but to offer high-interest deposit products. Since we also need to manage profitability, product interest rates may fluctuate frequently for a while as we quickly reflect rates from other financial institutions."