Despite the lower bound of major fixed deposit product interest rates in the banking sector falling below the base rate (3.50%), the balance of fixed deposits and installment savings at major commercial banks has been increasing for two consecutive months. The financial sector believes that as the possibility of future interest rate cuts is high, more depositors are trying to catch the 'last train' for relatively high-interest deposit products in the mid-to-high 3% range.
On the 4th, as loan interest rates fell and the interest rate spread between deposits and loans narrowed, a banner displaying deposit interest rates was posted on the exterior wall of a commercial bank in Seoul. Photo by Jinhyung Kang aymsdream@
According to the financial sector on the 2nd, the balance of fixed deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) last month was approximately 891.15 trillion won, an increase of 1.45 trillion won (0.16%) compared to the previous month (872.88 trillion won). Although slight, this marks a rise for two consecutive months following the previous month's increase of 16.82 trillion won (1.93%).
The balance of installment savings also recorded 34.6 trillion won, up 1.2 trillion won (3.59%) from the previous month (33.4 trillion won). The balance of installment savings at the five major commercial banks has shown an upward trend for four consecutive months since the end of March (31.4 trillion won).
Recently, interest rates on fixed deposit and installment savings products have been declining. According to the Korea Federation of Banks, the major fixed deposit product interest rates at these five banks as of the previous day ranged from 3.45% to 3.55% (simple interest, 12-month maturity), with the lower bound falling short of the base rate and the upper bound only 5 basis points (1bp=0.01%) higher.
Despite this situation, the recent increase in fixed deposit and installment savings subscribers is interpreted as a surge in last-minute demand to join relatively high-interest deposit products under the judgment that the timing of interest rate cuts is approaching. The market expects the U.S. Federal Reserve (Fed) to implement one or two interest rate cuts within the year, while countries around the world, including Europe, have already enacted rate cuts ahead of the Fed, which is taking a cautious stance.
Alternative options such as fixed deposits at mutual savings banks are also lacking. According to the Korea Federation of Savings Banks, as of the previous day, the average fixed deposit interest rate at 79 savings banks nationwide was 3.66%, with the interest rate gap compared to commercial banks being only 11 basis points at the upper bound. This is due to the overall deterioration of savings banks' business areas caused by recent increases in delinquency rates and the insolvency of real estate project financing (PF), leading to a reduction in deposit and loan assets.
A financial sector official said, "Since the current base rate level is clearly at its peak, it will be difficult for fixed deposit and installment savings interest rates to rise further unless driven by policy or events," adding, "There is currently last-minute demand for slightly higher deposit interest rates."
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