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(Seoul=Yonhap Infomax) Sang Min Han – South Korea's savings banks, part of the country's secondary financial sector, are now offering deposit rates lower than those of commercial banks, resulting in a rare 'interest rate inversion' phenomenon.
Industry sources say that, given the difficulty in expanding household lending, savings banks are likely to manage deposit rates solely to meet their loan-to-deposit ratio (LDR) targets, rather than to attract additional funds.
According to Yonhap Infomax data on November 25, the average 12-month simple interest rate for time deposits at major commercial banks stood at 2.75% as of the previous day, based on the highest preferential rates.
In comparison, the average 12-month time deposit rate at savings banks was 2.71% during the same period, marking a 4 basis point (bp) gap in favor of commercial banks (1bp = 0.01 percentage point).
As of end-June, the average one-year deposit rate at savings banks was 2.98%, but it has since fallen by 27bp over five months. In contrast, commercial banks raised their deposit rates by 15bp, from 2.60% to 2.75%, over the same period.
Unlike commercial banks, whose funding costs are closely tied to monetary policy and market rates, savings banks' funding rates are more influenced by their operating environment.
Industry officials note that, with lending operations constrained, there is little incentive for savings banks to expand their funding channels. Typically, the credit spread between commercial and savings banks can reach up to 1 percentage point.
“Since we can't increase lending, there's no need to hold onto deposits,” said an official at a savings bank. “Due to regulations on unsecured loans, there is no reason to raise deposit rates.”
Savings banks are instead managing deposit rates to prevent excessive money movement, even as they lower rates.
To meet annual management targets for the loan-to-deposit ratio, some savings banks are temporarily raising deposit rates toward year-end.
“If we raise deposit rates by just 0.1 percentage point for a few weeks when funding is needed, we can attract 300 billion to 500 billion won ($225 million–$375 million),” said an official at a major savings bank. “We can secure sufficient funding whenever necessary.”
Some institutions are also using installment savings products to retain customers despite lower deposit rates. However, the industry notes that the proportion of installment savings remains negligible compared to total deposits, limiting their effectiveness in preventing customer attrition.
There is also a consensus that an increase in the deposit insurance premium rate for savings banks is inevitable next year.
The current deposit insurance premium rate paid by savings banks to the Korea Deposit Insurance Corporation is 0.40%. The Korea Federation of Savings Banks is working to lower this to the 0.20–0.25% range, in line with mutual finance institutions.
However, if the premium rate rises, savings banks see little reason to preemptively increase deposits, given the additional cost burden.
In contrast, commercial banks are raising deposit rates to defend against potential outflows to securities firms’ new Integrated Money Accounts (IMA) launching next month and to the stock market.
The yield on one-year AAA-rated bank bonds was 2.781% as of the previous day, up 22bp from 2.562% at the end of June.
Among the four major commercial banks (KB Kookmin, Shinhan, Woori, Hana), Shinhan Bank offered the highest one-year deposit rate at 2.95%, above the sector average of 2.75%.
Across all banks, Standard Chartered Bank Korea posted the highest one-year deposit rate at 3.20%.
Jeonbuk Bank and K Bank offered rates of 2.93% and 2.88%, respectively, while Woori Bank, KakaoBank, KB Kookmin Bank, and Sh Suhyup Bank all posted 2.85% based on the highest preferential rates. BNK Busan Bank, a regional lender, had the lowest one-year time deposit rate among banks at 2.51%.
smhan@yna.co.kr
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