[1mm Financial Talk] Why Savings Banks Can't Smile Despite Deposit Recovery

Reluctant Rate Hike to Prevent Losing Customers
Worries Over Growing Deficit Size

The savings bank industry is frowning despite an increase in deposits. This is because they reluctantly raised deposit interest rates to avoid losing customers to banks and Saemaeul Geumgo.

According to the Bank of Korea on the 15th, as of the end of July, the deposit balance of savings banks was recorded at 115.0312 trillion won. This is an increase of 144.2 billion won compared to the previous month (114.887 trillion won), marking a rise for two consecutive months. The deposit balance of savings banks had been shrinking continuously from 120.7854 trillion won at the end of January this year to 114.526 trillion won in May, before turning upward in June.

The upward trend in deposits is the result of the industry continuously raising fixed deposit interest rates. The fixed deposit interest rate (based on a 1-year maturity) of savings banks rose by more than 0.5 percentage points from 3.62% per annum in March to 4.13% per annum in July. According to the Korea Federation of Savings Banks, as of today, the fixed deposit interest rate is 4.17%, maintaining its upward trend. MS Savings Bank and Smart Savings Bank offer the highest rates in the industry at 4.52% and 4.51% per annum, respectively, while many savings banks such as BNK, JT, OSB, Dongyang, Woori, and Union apply a 4.5% annual interest rate.

This is aimed at preparing for the maturity of last year's high-interest special deposit products, which offered annual rates of 6-7%. With the possibility of a large amount of funds being withdrawn at once, they have proactively raised interest rates to re-deposit funds. Competition for deposits with other sectors such as banks and Saemaeul Geumgo has also spurred interest rate hikes. Banks are offering deposits in the 4% range due to rising 1-year bank bond rates (the benchmark for deposit interest rates) and normalization of loan-to-deposit ratio regulations, while Saemaeul Geumgo has resumed special promotions with 7-8% interest rates to regain customers who left due to a bank run risk. From the perspective of savings banks, they have no choice but to raise deposit interest rates to avoid losing customers to these competitors.

The problem is that savings banks cannot arbitrarily raise deposit interest rates. The industry suffered nearly 100 billion won in losses in the first half of this year due to increased interest expenses from last year's special promotions. Therefore, savings banks typically offer deposit interest rates 0.8 to 1 percentage point higher than banks, but as of July, the gap with banks (3.81% per annum) was only 0.32 percentage points. A savings bank official said, "Unlike last year, we are in a situation where we cannot offer more attractive rates than banks," adding, "As a result, there are difficulties in raising funds, leading to a vicious cycle where loan operations, which form the profit base, are not active."

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