[1mm Finance Talk] Savings Banks' Deposit Rates, Once Lower Than Commercial Banks, Are Returning to the 3% Range

Annual Interest Rates on Savings Bank Fixed Deposits Rise from 2.67% to 2.72% in Two Weeks
OK, JT Chinae, HB Launch Products with 3% Interest Rates
"Further Increases in Deposit Rates Unlikely... Lending Operations Need to Recover"

Savings banks are reintroducing deposit products with interest rates in the 3% range. This move appears to be aimed at preventing customer attrition and managing the loan-to-deposit ratio, as the recent phenomenon of deposit rates at savings banks falling below those at commercial banks has emerged.

According to the Korea Federation of Savings Banks on November 26, the average interest rate for one-year fixed deposits at 79 domestic savings banks stood at 2.72% as of the previous day. After dropping from 2.72% on October 25 to 2.67% on November 10, the rate has recently rebounded.

The rise in fixed deposit rates is due to some savings banks reintroducing products with interest rates in the 3% range. HB Savings Bank raised the annual interest rate on its "e-Fixed Deposit" product from 2.86% to 3.01% starting the previous day. JT Chinae Savings Bank also increased the annual interest rate on its "Revolving Fixed Deposit (Variable Rate)" product from 2.9% to 3.05%. OK Savings Bank raised the annual interest rate on its "OK e-Safe App Plus Fixed Deposit 6" product from 2.9% to 3.1% on November 20. As recently as November 19, there were no fixed deposit products in the 3% range, but as of the previous day, the number had increased to 11.

The return of fixed deposit products with 3% interest rates, which had disappeared since October 24, after about a month, is seen as a response to concerns arising from commercial banks' deposit rates surpassing those of savings banks in the secondary financial sector. Typically, savings banks offer deposit interest rates about 1 percentage point higher than commercial banks, as deposits are their main funding source. However, as of November 10, the average deposit rate at all savings banks was 2.67%, while the main fixed deposit products at the four major commercial banks offered higher rates of 2.7% to 2.8%. As the likelihood of an additional benchmark interest rate cut within the year diminished, commercial banks quickly raised their deposit rates, while savings banks, concerned about declining margins from high-rate deposits, were slower to respond, resulting in a reversal of the usual rate hierarchy. An industry insider commented, "If savings banks lose their interest rate appeal, they could face liquidity issues," adding, "The recent launch of fixed deposit products in the 3% range appears to be a proactive measure in this context."

Some observers believe that savings banks will find it difficult to widely offer fixed deposit products with 3% interest rates. This is because the impact of real estate project financing (PF) shocks has not yet subsided, and lending operations remain challenging due to stricter loan regulations, making it unnecessary to aggressively expand deposit operations. Another industry insider stated, "Both household and corporate lending are difficult, so increasing deposits would only lead to losses," adding, "It is likely that savings banks will respond by raising deposit rates only to the extent necessary to maintain an appropriate loan-to-deposit ratio."

The savings bank industry is making every effort to manage asset quality this year. The cumulative net profit for the first three quarters of the year at the 79 savings banks reached 422.1 billion won, marking three consecutive quarters of profit. The delinquency rate for the third quarter was 6.9%, falling into the 6% range for the first time in one year and nine months. The liquidity coverage ratio and loan loss reserve ratio were 122.31% and 110.83%, respectively, both exceeding the statutory standard of 100%.