[1mm Financial Talk] Only 0.3%P Difference... Why Are Savings Banks' Deposit Rates?

On the 9th, when major commercial banks lowered their fixed deposit interest rates from the 5% range to the 4% range, the fixed deposit interest rates were displayed on the electronic board at the entrance of a bank in Seoul. Photo by Jinhyung Kang aymsdream@

As the financial sector is engaged in a fierce competition to re-deposit the 100 trillion won scale deposits attracted last year due to high interest rates, mutual savings banks are offering fixed deposit interest rates that are not significantly higher than those of commercial banks, drawing attention to the background of this trend.

According to the financial sector on the 20th, among the 79 savings banks nationwide as of the previous day, the one offering the highest fixed deposit interest rate is Joeun Savings Bank, which is selling a special product with a maximum annual interest rate of 4.65% for a 12-month maturity. This is only 0.3 percentage points higher than the highest interest rate of SC First Bank's e-Green Save Deposit, the highest among commercial banks, which offers up to 4.35% annually.

Top-tier savings banks offer lower rates than this. SBI Savings Bank's fixed deposit offers a maximum annual interest rate of 4.30%, OK Savings Bank's e-Fixed Deposit is at 4.21%, and Korea Investment Savings Bank's fixed deposit is around 4.15%, all falling short of the highest interest rate product from commercial banks (SC First Bank).

There is not much difference across the savings bank industry as a whole. As of this day, the average interest rate for 12-month fixed deposit products among 79 savings banks remains at 4.24%. This is only 0.19 to 0.24 percentage points higher than the average interest rate of 4.00 to 4.05% for 12-month fixed deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup).

Typically, savings banks attract deposits by offering interest rates 0.5 to 1.0 percentage points higher than commercial banks. Since most of their funding is covered by deposit attraction and considering their relatively lower stability compared to commercial banks, they provide comparatively higher interest rates.

The reason savings banks do not significantly raise deposit interest rates despite this situation is attributed to recent performance deterioration. According to the Korea Federation of Savings Banks, 32 savings banks with assets over 1 trillion won recorded a loss of 92.6 billion won in the first quarter of this year alone. The deposit competition triggered by the 'Legoland incident' in the fourth quarter of last year caused a boomerang effect where deposits attracted at high interest rates turned into losses. Recently, some savings banks have even appeared as merger and acquisition (M&A) targets.

Savings banks are also reducing their loan volumes. According to the Bank of Korea's economic statistics system, as of August, the loan balance of savings banks was 108.8647 trillion won, down 6.28% from 116.1647 trillion won the previous year. Due to the expansion of non-performing loans on both sides of household loans, including loans to medium- and low-credit borrowers, and corporate loans such as real estate project financing (PF), they have started downsizing to manage soundness. This also reduces the funding pressure on savings banks.

A financial sector official said, "Savings banks are reducing loan assets due to deteriorating profitability and managing deposit volumes at a certain level," adding, "Although there is competition related to re-deposits, the possibility of it escalating into overheated competition like last year is low, so the deposit interest rates of savings banks will only rise slightly."

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