Savings Banks Roll Out 3% Range Deposit Rates... Aggressive Marketing Still Uncertain

Average One-Year Fixed Deposit Rate at Savings Banks Rises to 2.93%
Up 0.26 Percentage Points from Two Months Ago
"Focus on Loan-to-Deposit Ratio Management" ... Prioritizing Soundness Over Deposit Growth

The 3% range for fixed deposit interest rates, which had disappeared from savings banks for a while, is making a comeback. However, this is interpreted as a management measure to maintain an appropriate deposit size, rather than an aggressive special promotional campaign.

According to the Korea Federation of Savings Banks on January 15, the average interest rate for one-year fixed deposits at 79 savings banks nationwide stood at 2.93% per annum as of the previous day. Just two months ago, the rate had dropped to as low as 2.67%, but it has been rebounding at the turn of the year.

Until mid-November last year, there were no one-year fixed deposit products at savings banks offering interest rates in the 3% range. However, as of the previous day, 125 out of 370 products guaranteed rates in the 3% range. The highest rate was offered by Must Samil Savings Bank's 'e-Fixed Deposit' at 3.2% per annum. CK Savings Bank, HB Savings Bank, Dongyang Savings Bank, and Smart Savings Bank offered products at 3.18%, while JT Savings Bank, JT Chinae Savings Bank, and Cham Savings Bank, among others, introduced products at 3.17%.

Although savings banks are rapidly launching fixed deposit products with interest rates in the 3% range, industry insiders say this is a "no other choice" situation. The sector is still reeling from the impact of distressed real estate project financing (PF) and faces difficulties in loan operations due to lending regulations, making it burdensome to aggressively increase deposits. However, with first-tier banks now offering higher fixed deposit rates than savings banks and a stock market boom drawing funds to commercial banks and securities firms, savings banks cannot simply stand by and watch. An industry official commented, "Unlike in the past, we are not aggressively promoting high-interest special offers at the beginning of the year," adding, "The reappearance of 3% range products is more about managing the loan-to-deposit ratio and serves as a form of marketing."

The total deposit balance at savings banks recently fell below 100 trillion won for the first time in six months. According to data submitted by the Korea Deposit Insurance Corporation to Assemblyman Lee Heonseung of the National Assembly's Political Affairs Committee, the deposit balance at savings banks was about 99 trillion won as of the end of last month. This is the first time since June last year (99.5159 trillion won) that the balance has fallen below 100 trillion won. Although the deposit protection limit was raised to 100 million won from September last year, which was expected to attract more funds to savings banks, the opposite result has occurred.

The savings bank industry does not expect the trend of launching high-interest products to last long. For the time being, the focus will be on soundness management rather than aggressive marketing. Financial authorities are also concentrating on strengthening the soundness management capabilities of savings banks by urging the swift disposal of distressed real estate PF assets and raising the loan loss provision ratio for multiple debtors.

To strengthen soundness, the savings bank industry is conducting the 7th demand survey for a joint fund to dispose of distressed real estate PF assets by January 20. Last year, through the 1st to 6th funds, the industry disposed of distressed assets worth 2.41 trillion won. SB NPL, a specialized management company for distressed bond disposal, recently increased its capital to 10.5 billion won through a paid-in capital increase and plans to begin full-scale operations this year.