Forecast Rate 'Cap 0.5%' Extended for 3 More Years... Savings Banks' Dissatisfaction Grows (Comprehensive)

Passed in Political Affairs Committee Bill Subcommittee and Plenary Meeting... Revised from Original 5 Years to 3 Years

[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 three more years until 2024. 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stable operation of the depositor protection system and the deposit insurance fund, but there are criticisms that it is outdated and growing dissatisfaction within the financial sector.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 consecutively held the bill review subcommittee and the plenary session, passing the amendment to the Depositor Protection Act to extend the sunset clause of the deposit insurance premium rate limit until 2024.

Originally, the amendment proposed a five-year extension until 2026, but during the bill review process, it was reduced to three years. Additionally, the Financial Services Commission was required to report the progress on the appropriate deposit insurance premium rate to the standing committee every six months.

Once it passes the Legislation and Judiciary Committee and the plenary session, the deposit insurance premium rate will remain at the current 0.5% for three years.

The deposit insurance premium refers to the money that financial companies handling deposits set aside in the deposit insurance fund to compensate depositors for losses when the financial institution cannot repay deposits due to management failure. The KDIC pays insurance benefits (up to 50 million KRW) on behalf of the financial institutions.

The upper limit of the deposit insurance 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 law is not amended to extend the deadline, the industry-specific rates set in 1998 will apply. In that case, the deposit insurance premium rates will significantly decrease to banks 0.05%, securities 0.1%, and savings banks 0.15%, among others.

High Possibility of Sunset Extension... Yoon Jae-ok, Member of the National Assembly, Says "Extension of Application Period is Desirable"

However, considering that the bill passed smoothly without opposition from both ruling and opposition parties at the meeting, and 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, which is less than half.

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

Yoon Jae-ok, a member of the People Power Party who sponsored the bill, explained, "It is desirable to extend the application period of the current premium rate limit to facilitate the smooth procurement of funds for the savings bank special account and to secure stability in the depositor protection system."

Strong Dissatisfaction in the Financial Sector... Savings Banks Say "Five Times Higher than Banks, Punitive Deposit Insurance Premium Rate"

On the other hand, as the extension of the sunset clause becomes more visible, dissatisfaction in the financial sector is growing. A savings bank official said, "Since the 2011 crisis, we have worked hard to improve our image and secure financial soundness. It is unreasonable to impose a punitive deposit insurance premium rate on savings banks when all the problematic savings banks have been eliminated." He added, "They keep telling us to lower interest rates, but does it make sense to have a deposit insurance premium rate five times higher than banks? The financial authorities have also proposed linking the increase rate and risk of household loans to the deposit insurance premium and possibly increasing it up to 10% from next year, which is frustrating and infuriating."

Another official expressed concern, saying, "If the deposit insurance premium rate is maintained, the polarization between large and small savings banks will worsen." In fact, the average net income by region for the first to third quarters of last year shows polarization: Seoul 28.2 billion KRW, Gyeonggi·Incheon 12 billion KRW, Daejeon·Chungcheong 4.2 billion KRW, Daegu·Gyeongbuk·Gangwon 1.4 billion KRW, Gwangju·Jeolla 3.7 billion KRW, Busan·Ulsan·Gyeongnam 5.4 billion KRW.

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