Deposit Insurance Rate 'Cap 0.5%' Likely Extended for 5 More Years

Savings Banks "Five Times Higher Than Banks... Punitive Deposit Insurance Rates Unreasonable"

[Asia Economy Reporter Kwangho Lee] The current maximum limit of the deposit insurance premium rate, set at 0.5%, is expected to be extended for another five years until 2026. The Korea Deposit Insurance Corporation (KDIC) insists that the current level should be maintained to ensure the stable operation of the depositor protection system and the deposit insurance fund, but there are criticisms that it is outdated and growing dissatisfaction within the financial sector.

According to the National Assembly and financial circles on the 20th, the Political Affairs Committee held consecutive meetings of the bill review subcommittee and the plenary session to process the amendment to the Depositor Protection Act, which extends the sunset clause of the deposit insurance premium rate limit until 2026. If it passes the Legislation and Judiciary Committee and the plenary session, the premium rate will remain at the current 0.5% for five years.

The deposit insurance premium refers to the money accumulated by the deposit insurance corporation to compensate depositors for losses when financial companies handling deposits are unable to repay deposits due to management failure, etc. The deposit insurance corporation pays insurance money (up to 50 million KRW) on behalf of financial companies.

The upper limit of the premium rate is set at 0.5%, but the enforcement decree sets different limits by industry sector: banks 0.08%, securities companies 0.15%, insurance companies 0.15%, comprehensive financial companies 0.2%, and savings banks 0.4%.

This rate applies until August 31, and if the deadline is not extended by law amendment, the industry-specific rates set in 1998 will apply. In that case, the premium rates will be significantly lowered to banks 0.05%, securities 0.1%, savings banks 0.15%, etc.

However, since there is no disagreement between the ruling and opposition parties in the meeting, and considering that the special account for savings bank restructuring, introduced in March 2011 to secure funds for savings bank restructuring, must be repaid by 2026, the possibility of extending the sunset clause is high.

To resolve the 2011 savings bank crisis, the government injected about 27 trillion KRW into 31 savings banks from January 2011 to January 2015. Currently, 45% of the deposit insurance premiums (100% for savings banks) are being recovered through the special account for savings bank restructuring, but as of last year, only about 13 trillion KRW has been recovered, less than half.

A KDIC official said, "We need to recover public funds, but if the premium rate decreases, insurance income will decline, and repayment of the special account will be delayed. Adjusting the premium rate is not easy."

On the other hand, as the extension of the sunset clause becomes more visible, dissatisfaction among savings banks and other financial sectors is growing.

An official from a savings bank said, "Since the 2011 crisis, we have worked hard to improve our image and secure financial soundness. It is unreasonable to force punitive premium rates on savings banks when all the problematic savings banks at that time have been eliminated." He added, "While interest rates are continuously lowered, it makes no sense that the premium rate is five times higher than that of banks. The financial authorities’ plan to link the increase rate and risk of household loans to the premium rate and impose up to a 10% surcharge from next year is frustrating and infuriating," raising his voice.

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