Interest Rate Hike Rally... Commercial Banks Catching Up with Savings Banks

Commercial Banks Introduce Deposit Products Approaching 4% Interest Rates
Savings Banks and Interest Rate Gap Narrow to 0.2%P... Continued Fund Inflow Expected

[Asia Economy Reporter Minwoo Lee] With increasing criticism of interest profiteering, the disclosure system for the interest rate spread between loans and deposits, and the simultaneous rise in the base interest rate, the interest rates on regular savings deposits at commercial banks are approaching 4%. They are even catching up with the interest rates of savings banks' deposit products.

According to the Bankers Association on the 7th, DGB Daegu Bank's regular savings product "DGB Main Transaction Preferential Deposit (First Meeting Customer Type)" recorded a top interest rate of 3.81% (based on 12 months). This is 0.21 percentage points (P) higher than KDB Industrial Bank's "KDB Hi Regular Deposit," which had offered the highest interest rate for several months this year at 3.60% (based on 12 months). BNK Busan Bank's "The Special Regular Deposit" also offers an annual interest rate of 3.65%. The five major commercial banks, Hana Bank and KB Kookmin Bank, also introduced regular deposit products with interest rates in the 3.5% range.

Products approaching 4% have appeared based on a 36-month term. Gwangju Bank's "Smart Moa Dream Regular Deposit" offers up to 3.99% annual interest. IBK Industrial Bank's "1 Stone 7 Birds Account (Regular Deposit)" also boasts a base interest rate of 3.95% annually for 36 months. This is similar to the top-tier regular deposit products among savings banks. According to the Savings Banks Association, the highest interest rate for 12-month regular deposits is 4%, offered by Equion Savings Bank and Kiwoom Yes Savings Bank. Even when extending the term to 36 months, the highest interest rate is only 4.15%. The difference in interest rates between the highest-rate products is only 0.16 to 0.19 percentage points.

This is interpreted as a result of commercial banks rapidly raising interest rates due to the rising base interest rate and regulatory pressure against interest profiteering. The Bank of Korea's Monetary Policy Committee raised the base interest rate by 0.25 percentage points to 2.50% annually on the 25th of last month. This marked the first time the rate was raised five consecutive times.

Around this period, commercial banks consecutively increased the interest rates on deposit and savings products. Large banks such as KB Kookmin Bank (up to 0.40%P), Shinhan Bank (up to 0.40%P), Woori Bank (up to 0.50%P), and Hana Bank (up to 0.30%P), as well as internet-only banks like KakaoBank and K Bank (each up to 0.80%P), and foreign banks such as SC First Bank (up to 0.25%P), all raised their rates. The recently implemented disclosure system for the interest rate spread between loans and deposits also had an impact. Banks responded quickly to avoid regulatory pressure and public criticism of interest profiteering.

Meanwhile, savings banks have faced constraints on aggressive deposit operations due to household loan volume regulations and the reduction of the legal maximum interest rate (from 24% to 20%), which is believed to have narrowed the interest rate gap between their products and those of commercial banks. According to the Bank of Korea, the interest rate difference between mutual savings banks and deposit banks for deposits of 6 months to less than 1 year decreased from 1.10%P in September last year to 0.69%P in June this year.

A financial industry official said, "Criticism of interest profiteering is unlikely to subside for the time being, and with the base interest rate expected to steadily rise, the increase in interest rates on commercial banks' deposit products will continue. If interest rates are similar, people will inevitably prefer commercial banks, leading to further concentration of funds in commercial banks."

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