1-year Fixed Deposit Rate at 79 Savings Banks Drops to 2.92%
Lowest Level Since June 8, 2022
Raising Deposit Protection Limit to 100 Million Won Has Little Impact Amid Weak Loan Demand
The interest rate for 1-year fixed deposits at savings banks has hit its lowest point in approximately 3 years and 3 months. Although the deposit protection limit was raised to 100 million won this month, which was expected to trigger a 'money move' to savings banks, the impact is projected to be limited.
According to the Korea Federation of Savings Banks on September 17, the average interest rate for 12-month fixed deposits at 79 domestic savings banks stood at 2.92% as of the previous day. This is the lowest level since June 8, 2022, when it was also 2.92%. The rate has been on a continuous downward trend since August 28, when it fell below the 3% mark. As of the previous day, the interest rate for 2-year fixed deposits was 2.51%, and for 3-year fixed deposits, it was 2.52%.
Currently, the lowest 1-year fixed deposit rate in the market is offered by Joeun Savings Bank’s Yeosu branch at 2%. Joeun Savings Bank’s Seoul headquarters provided a high rate of 3.3% until the end of last month, but lowered it to 3% this month. Other savings banks, including JT Chinae Savings Bank, Daishin Savings Bank, and Acuon Savings Bank, have also reduced their 1-year fixed deposit rates by approximately 0.1 to 0.3 percentage points this month compared to previous rates. At present, the highest 1-year fixed deposit rate among savings banks is offered by Cham Savings Bank at 3.26%. While products with rates in the 3.4% range were available until mid-July, it is now difficult to find even those in the 3.3% range.
Initially, some expected that raising the deposit protection limit to 100 million won would prompt funds to move into the secondary financial sector, such as savings banks. This is because the secondary sector offers higher interest rates than the primary sector, with even stronger safety measures. However, there has been little change so far. As of September 8, the balance of fixed deposits at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) in the primary sector stood at 958.084 trillion won, an increase of 3.3521 trillion won compared to the end of last month. Normally, savings banks would compete to attract customers through special promotional deposit products, but such offerings have largely disappeared.
Savings banks are reluctant to see an increase in deposits while loan business remains sluggish. In order to generate a net interest margin (the difference between deposit and loan rates), deposits collected from customers need to be lent out, mainly through corporate loans. If this does not occur, losses may result. The government’s “June 27 Household Debt Management Plan” restricted credit loan limits to within annual income, leading to reduced loan demand and making it difficult for savings banks to pursue aggressive lending. The lingering impact of bad real estate project financing (PF) loans and persistently high delinquency rates also remain significant obstacles. Reflecting this situation, the total loan balance at savings banks stood at 94.9746 trillion won as of the first half of this year, marking a decrease for seven consecutive months since December last year. An industry official stated, “In a situation where loans are decreasing, some savings banks are lowering deposit rates to avoid negative margins,” adding, “The benefits of the increased deposit protection limit will become more pronounced when the base interest rate is lowered in earnest.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
