Money Flows into Stock Market... Banks Lower Interest Rates Further, Home Customers Rapidly Flee (Comprehensive)

Bank Deposit Interest Rates Cut Again... Tiny Interest Drives Loyal Customers Away Quickly
Woori Bank Lowers Fixed Deposit Rates by 0.25%p from the 15th
Commercial Banks' Fixed Deposit Rates Below 1% per Year

[Asia Economy Reporter Park Sun-mi] These days, Kim Sang-hyuk (53, pseudonym), who has 100 million won in spare money, is worried about finding a suitable investment destination. Considering his age and disposition, a bank fixed deposit would be perfect, but the meager interest rates were bothersome. With deposit interest rates averaging around 0.6~0.7% annually and a 15.4% tax deduction, the net income is only about 500,000 won per year. Ultimately, Kim decided to install a securities firm's Mobile Trading System (MTS), which he had never used before, and join the ranks of the ‘Donghak Ants’ investors.

While liquidity is flowing into the stock and real estate markets, bank fixed deposit interest rates continue to decline. The basic interest rates for fixed deposits at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?are below 1% annually, and this trend is continuing downward. Coupled with the stock market boom, the outflow of funds from bank deposits is likely to accelerate further.

According to the banking sector on the 14th, Woori Bank will lower the interest rates on its main fixed deposit products, ‘Woori Super Fixed Deposit’ and ‘Senior Plus Woori Deposit,’ which are subscribed to at branches starting from the 15th of this month. For the Woori Super Fixed Deposit with a one-year maturity, the interest rate will drop by 0.25 percentage points from the current 0.90% per annum to 0.65%. The Senior Plus Woori Deposit (revolving and immediate pension types) will also see a decrease from the current 0.55% to 0.30% per annum for a 12-month term.

A Woori Bank official explained, "The interest rate adjustment was made considering that Woori Bank’s rates were more than 20 basis points (0.2%) higher than those of other banks’ main fixed deposit products."

What are the fixed deposit interest rates in the banking sector?

Currently, fixed deposit interest rates in the banking sector do not even reach 1% per annum.

The basic interest rates for fixed deposits at the five major banks, as disclosed by the Banks Association, range from 0.45% to 0.90% for a 12-month term. Since the rate fell below 1% for the first time in history in June last year, it has remained at a ‘zero interest rate’ level. Banks offer preferential interest rates if customers meet conditions such as credit card usage or automatic payment settings for utilities and management fees, but these conditions are strict, and the preferential rates are not high, leading consumers to describe fixed deposit interest as ‘meager.’

As deposit interest rates continue to fall, more consumers are deciding there is no need to lock their funds for such meager interest. As the KOSPI rises, consumers are withdrawing money from fixed deposits and moving funds to investment destinations like stocks that offer higher returns.

The total balance of deposits and savings at the five major banks at the end of last month was 673.7286 trillion won, a sharp decrease of nearly 12 trillion won compared to a year ago. The decline was especially significant since November last year, when the KOSPI’s upward trend accelerated. In December, the deposit and savings balance decreased by 7.5832 trillion won compared to the end of the previous month.

Outflow of funds from bank deposits and savings

Recently, even demand deposits, which are liquid funds that depositors can withdraw anytime without restrictions, have seen an outflow of funds. The balance of demand deposits at the five major banks was 608.4 trillion won as of the 12th, down about 22.7 trillion won from 631.1 trillion won at the end of last year.

A bank official said, "We are running events that add extra interest rates to deposit products to attract users to the bank’s application (app), but it is inevitable that overall bank deposit interest rates are falling due to the low-interest-rate environment. Since the stock market is relatively booming, customers disappointed with low interest rates are withdrawing money from deposits."

Meanwhile, unlike the surge in loans, fixed deposits with interest rates in the 0% range are being shunned by consumers, putting the banking sector’s efforts to maintain the Liquidity Coverage Ratio (LCR) in jeopardy.

The LCR is a representative indicator of a bank’s soundness, measuring the ratio of high-quality liquid assets to the expected net cash outflows over the next 30 days. As of the end of the third quarter last year, the average LCR of the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 94%. All five banks saw their LCR decrease from the previous quarter by between 2.49 and 8.08 percentage points.

This content was produced with the assistance of AI translation services.