Regional Banks and Internet Banks Lower Deposit Rates
Commercial Banks Reflect Changes Over 3 Months
Market Interest Rates Fall Following Base Rate Cut
Loan Rates Slightly Decrease or Remain Unchanged
"Concerns Over Loan Concentration, etc."
Are Only Banks Benefiting from Interest Rate Cuts?
As the Bank of Korea lowered the base interest rate, banks have been consecutively reducing deposit interest rates. However, loan interest rates, which consumers can actually benefit from, are expected to remain steady for the time being due to the government's household loan regulation policy. As a result, the interest rate spread (the difference between deposit and loan interest rates) is widening, leading to criticism that only banks are benefiting from the interest rate cut.
According to the financial sector on the 9th, BNK Gyeongnam Bank lowered interest rates on four deposit products and ten installment savings products starting from the 6th. For regular time deposits, the rates were cut by 0.15 percentage points depending on the product term. The product with the largest reduction was the Individual Savings Account (ISA) time deposit, which was lowered by up to 0.3 percentage points. Regular installment savings were reduced by 0.2 percentage points, and the "Tan! Tan! Successful Savings" product saw a cut of up to 0.5 percentage points (for products with a subscription period of 36 months or more). On the same day, interest rates on four non-face-to-face deposit products (two lump-sum deposit products and two installment deposit products) were also lowered by 0.25 to 0.3 percentage points. BNK Busan Bank, part of the same financial group, reduced interest rates on ten lump-sum deposit products and nine installment deposit products earlier, on the 5th.
Internet banks had already started lowering deposit interest rates earlier. K-Bank reduced interest rates on two installment savings products (Challenge Box and Curious Savings) by 0.3 percentage points on the 2nd. Then, on the 3rd, it lowered the interest rate on the "CodeK Time Deposit" by 0.1 to 0.2 percentage points. The five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have lowered deposit interest rates over the past three months but have not reduced deposit interest rates in response to the recent base rate cut.
The deposit interest rate reductions by regional banks and internet banks followed the Bank of Korea's Monetary Policy Committee lowering the base rate by 0.25 percentage points from 3% per annum on the 28th of last month. When the base rate falls, market interest rates used in the capital market also decline. As market interest rates drop, banks' funding costs decrease, giving them room to lower interest rates that directly affect consumers, from deposit to loan rates. In fact, market interest rates fell into the 2% range for the first time since June 2022. According to data from the Korea Financial Investment Association's Bond Information Center, the one-year financial bond (bank bond, AAA rated) interest rate, which serves as a benchmark for deposit rates, was 2.997% as of the 6th. This is a 0.218 percentage point drop from 3.215% on the 27th of last month, the day before the base rate cut. The environment for lowering loan interest rates has also been created. The five-year bank bond rate, which serves as the benchmark for fixed (mixed) mortgage loan rates, remains below 3% at 2.948% as of the 29th of last month, marking the first time in two years and eight months.
In line with this, the five major commercial banks lowered loan interest rates based on bank bonds, but the reductions were not significant. KB Kookmin Bank lowered fixed-rate household loan interest rates by up to 0.19 percentage points on the 2nd. Hana Bank and Shinhan Bank, which frequently reflect market interest rates, showed similar trends. Hana Bank reduced mixed mortgage loan rates by 0.189 percentage points on the 29th of last month, while Shinhan Bank lowered the lower bound by 0.14 percentage points and the upper bound by 0.15 percentage points, respectively.
Due to ongoing household loan volume regulations by financial authorities, banks are expected to find it difficult to lower loan interest rates for the time being. If loan rates were lowered, there could be a concentration of loans at specific banks. In fact, in October, K-Bank raised the spread on its five-year fixed-rate apartment mortgage loan product by 0.1 percentage points, maintaining an interest rate in the 3.7% range. Subsequently, as commercial and regional banks raised loan interest rates, K-Bank attracted loan demand due to its relatively lower rates, prompting it to implement the previously restrained rate increase after two months. Since household loan volume limits will be reset early next year, there is a possibility of loan interest rates decreasing. However, as household loan balances continue to grow, it is expected to take some time before rates are lowered. As of last month, the household loan balance of the five major commercial banks was 733.3387 trillion won, an increase of 1.2575 trillion won compared to the previous month. Although the monthly loan growth rate has slowed over the past three months, the total amount has increased for eight consecutive months.
This has led to criticism that only banks are benefiting from the interest rate cuts. While deposit interest rates have fallen, loan interest rates remain high, causing the interest rate spread?a key indicator of bank profitability?to widen. The interest rate spread refers to the gap between the loan interest rates banks charge borrowers and the interest rates they pay depositors. According to data from the Korea Federation of Banks' consumer portal, the average household interest rate spread (excluding policy-based low-income financial products) for regional and internet banks was 2.01 percentage points in July. It then dropped to 1.66 percentage points in August but rose again to 1.79 percentage points in September and 1.96 percentage points in October. The five major commercial banks' interest rate spread also averaged 1.04 percentage points, increasing for three consecutive months since August (0.57 percentage points).
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