Savings Bank Deposits Surpass 120 Trillion Won... "Is My Money Safe?" Deposit Protection Bill Proposed

Concerns Rise Among Financial Consumers as Health of Secondary Financial Sector Deteriorates Amid Large Cash Inflows
"Calls for Adjustment of Deposit Protection Limits" Grow Louder

[Asia Economy Reporters Sim Nayoung and Boo Aeri] "The interest rates on regular savings accounts at commercial banks have dropped to the 4% range, but the interest rates on regular savings accounts at savings banks are still in the high 5% range. I've seen news lately that the condition of savings banks isn't good, so I'm hesitant to invest, but people around me say that deposits up to 50 million won are protected, so I shouldn't worry... Is it okay to put money in savings banks?"

Office worker No Jeongeun (52) decided to withdraw 100 million won, which she had invested in stocks, and open fixed deposits. After much consideration, she involved her husband and son to split the deposits among three savings banks.

The interest rates on savings bank deposits are usually more than 1 percentage point higher than those of commercial banks, attracting people's attention throughout this year of rising interest rates. The rapid increase in deposits at savings banks over the past year is evidence of this. The problem is that although savings banks have increased their funds, their profitability has actually worsened. To alleviate financial consumers' concerns, financial authorities and the National Assembly are moving to raise the deposit insurance limit.

Savings Banks Increased Deposits by 23 Trillion Won in One Year... But Soundness Indicators Declined

According to the Bank of Korea's Economic Statistics System on the 15th, the total deposits of domestic savings banks exceeded 120 trillion won as of the end of October. This is an increase of 23.5722 trillion won from about 97.4187 trillion won at the end of October last year, reaching 120.9909 trillion won. Expanding the scope to include other secondary financial institutions (credit cooperatives, mutual finance, Saemaeul Geumgo), deposits increased by about 90 trillion won during the same period (from 837.5649 trillion won to 926.8544 trillion won).

While deposits at savings banks have increased, loans have become increasingly difficult. A savings bank official explained, "Profitability has deteriorated due to rising loan funding costs and the statutory maximum interest rate being fixed at 20%. Some savings banks have even ventured into real estate project financing (PF), causing the BIS (Bank for International Settlements) capital adequacy ratio, a soundness indicator, to decline."

Among the 23 savings banks operating in Seoul, 17 saw their BIS ratios fall compared to last year. The average BIS ratio of these 23 savings banks in the third quarter of this year was 14.30%, down 1.15 percentage points from 15.45% in the same period last year.

The BIS ratio is the bank's capital divided by risk-weighted assets (loans, guarantees, investments, etc.). A decline in this ratio indicates deteriorating financial soundness. Although the regulatory minimum BIS ratio for troubled financial institutions is 8%, the authorities have been closely monitoring the downward trend since last year.

Deposit Protection of 50 Million Won Is Insufficient... Should Be Raised to 100 Million Won
"Bill Proposed to Adjust Deposit Protection Limit Every 5 Years"

As concerns grew due to increased large deposits in savings banks alongside declining soundness indicators, authorities and the financial industry maintain that "there is no need for excessive worry because the safety net of a 50 million won deposit protection limit exists." A savings bank official explained, "However, since the 50 million won limit includes principal and interest, customers who have deposited 50 million won in fixed deposits should note that interest may not be fully guaranteed."

The Korea Deposit Insurance Corporation plans to prepare a final proposal by August next year, including raising the deposit insurance limit to 100 million won, reflecting financial consumers' demands, and report it to the National Assembly's Political Affairs Committee. The National Assembly has also introduced a more proactive amendment to ease financial consumers' concerns.

Democratic Party lawmaker Park Seongjun proposed an amendment to the Deposit Insurance Act to adjust the deposit protection limit every five years, considering changes in economic conditions. Lawmaker Park said, "Since 2001, the insurance payout limit has been set at 50 million won, but considering that the gross domestic product per capita has more than tripled, the limit should be adjusted, and a system for regular adjustments should be established. The Korea Deposit Insurance Corporation should decide the insurance payout limit every five years to protect depositors."

Credit Unions, Mutual Finance, and Saemaeul Geumgo, Which Provide Their Own Deposit Protection, Also Need to Prepare for Increases

[Image source=Yonhap News]

If the deposit insurance amount guaranteed by the Korea Deposit Insurance Corporation increases, credit unions, mutual finance, and Saemaeul Geumgo, which have been collecting their own funds to protect depositors, are also likely to raise their limits accordingly. These financial institutions have regularly collected deposit insurance funds from each cooperative and credit union. For example, Saemaeul Geumgo has been creating deposit insurance funds by collecting 0.13% of deposit balances quarterly from each credit union, and raising this rate to accumulate additional funds is a likely approach.

An official from the mutual finance sector said, "If the deposit insurance limit for savings banks, which are also secondary financial institutions, is 100 million won, but mutual finance remains at 50 million won, consumer confusion will increase. The financial authorities will take measures to ensure that all financial institutions raise their deposit insurance limits."

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