Preparations Underway for Higher Deposit Protection Limit
No Significant Movement of Funds in the Financial Sector Yet
With only two weeks left until the increase in the deposit insurance limit, it appears that there has not yet been significant movement of funds within the financial sector.
On August 18, the Financial Services Commission announced that it had held a meeting at the Seoul Government Complex to review the preparations for the implementation of the raised deposit insurance limit, together with related institutions such as the Financial Supervisory Service, the Bank of Korea, and the Korea Deposit Insurance Corporation.
Starting next month, the deposit insurance limit will be raised from 50 million won to 100 million won. The meeting was held to check the status of fund movements among banks, savings banks, and mutual finance institutions, as well as the industry's overall readiness.
The Financial Services Commission and related agencies assessed that, as of the end of last month, there have been no unusual trends in fund movements resulting from the increase in the deposit insurance limit. Since the legislative notice, deposits at banks, savings banks, and mutual finance institutions have all increased at levels similar to previous years. The authorities explained that, so far, there has been no clear sign of funds shifting from banks to secondary financial institutions, nor of funds concentrating from small and medium-sized savings banks to large savings banks, which had been a concern.
By sector, the balance of bank deposits is increasing at an average annual rate similar to the past five years (2020-2024), and the outflow of deposits from banks to savings banks or mutual finance institutions is considered minimal.
In the case of savings banks, the deposit balance has started to rise since the legislative notice, but the growth remains moderate and is still below the deposit balance at the end of last year. In addition, both small and medium-sized savings banks and large savings banks are seeing balanced growth in their deposit balances, and there was consensus that concerns about funds concentrating in large savings banks are not yet warranted.
The deposit balance in the mutual finance sector is increasing within the average annual and monthly growth rates of the past five years, and so far, the impact of the increased deposit insurance limit on deposit growth in this sector is considered minimal.
Deposit interest rates at banks, savings banks, and mutual finance institutions have all declined at a rate similar to this year's base rate cuts. However, savings banks have maintained relatively high interest rates in the 3% range since the legislative notice to prevent a decrease in deposits compared to other sectors. So far, there has been no sign of excessive competition for high-interest special products compared to before the legislative notice, but the number of high-interest special products at savings banks and mutual finance institutions has increased somewhat, so continuous monitoring will be conducted.
The Financial Services Commission stated that it plans to continuously monitor fund movements after the implementation of the increased deposit insurance limit through a dedicated task force. In particular, during the fourth quarter, when deposit maturities are concentrated, it will more closely monitor deposit balances and deposit interest rates.
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