Increasing Limits and Offering Higher Interest... Internet Banks' Fierce Competition in Deposit Products

Focusing All Efforts on Securing Funds to Meet Household Loan Growth Targets
and Increase the Proportion of Medium- to Low-Credit Borrowers

[Asia Economy Reporter Kiho Sung] Internet-only banks are intensifying their deposit competition by launching products with various deposit interest rate benefits. This is because securing customers and deposits is essential to significantly increase mid-interest loans, which had been postponed for survival reasons, starting this year. Additionally, as high-credit loans are being gradually suspended in accordance with the government's household loan management policy, there is a prospect that deposit competition to secure funds may continue.

According to the financial sector on the 14th, the most notable deposit product in the banking sector is Toss Bank's "2% Annual Interest Account," launched this month. Regardless of maturity or amount, simply depositing money into this demand deposit account earns an annual interest rate of 2%. Interest is calculated daily and paid monthly. Compared to the market banks' demand deposit interest rate of about 0.1% per year, this is a groundbreaking rate, attracting 1.1 million financial consumers in pre-registrations.

Following Toss Bank's bold product launch, existing internet banks are also increasing the benefits of their deposit products. Kakao Bank recently raised the limit of its demand deposit account "Safe Box" from the previous 10 million KRW to up to 100 million KRW. Safe Box offers an interest rate of 0.8% per year even if money is deposited for just one day. K Bank, in line with the Bank of Korea's base rate hike, raised its deposit interest rates once more. After increasing the "CodeK Time Deposit" rate by 0.2 percentage points in August, it further raised it by 0.1 percentage points starting this month. Depositing money for over one year yields an interest rate of 1.5%. Considering that market banks' time deposit rates remain below 1%, this is an unusual trend.

The financial industry views the deposit competition among internet banks as a challenging task to meet the annual household loan growth target while increasing the proportion of loans to low- and medium-credit borrowers. While profits from high-credit loans would have secured funds for loans to low- and medium-credit borrowers, the suspension of high-credit loans means that funds must now be secured through high-interest deposits.

In fact, internet banks are successively announcing the suspension of high-credit loans. Kakao Bank has halted credit loans and overdraft accounts for high-credit borrowers until the end of the year. K Bank has lowered the credit loan limit, which was up to 250 million KRW, to "within annual income." Newly launched Toss Bank exhausted about 330 billion KRW of its 500 billion KRW loan limit within a week. Moreover, Kakao Bank, K Bank, and Toss Bank must increase the proportion of loans to low- and medium-credit borrowers to 20.8%, 21.5%, and 34.9%, respectively, by the end of the year.

The market expresses concerns that high-interest deposit products will ultimately become a burden, potentially forcing internet banks into a structure where deposit competition causes long-term losses. Additionally, the government's policy to restrict high-credit loans while increasing loans to low- and medium-credit borrowers may deteriorate the quality of household debt. A financial sector official pointed out, "There is a possibility that low- and medium-credit borrowers might take out loans for investments or other purposes even if they do not necessarily need money due to benefits like interest support," adding, "For high-credit borrowers who genuinely need loans, the loan restrictions might push them to turn to private lenders in the worst case, worsening the quality of debt."

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