Savings Banks Relay Deposit Rate Cuts..."Reduced Need for Fundraising"

Falling Nearly 0.2%p in a Month
Securing Liquidity Compared to High-Interest Deposit Maturities
Loan Reduction Trend Expected to Continue for Now

The savings bank industry is starting to cut down on fixed deposit interest rates. As the need to secure liquidity has decreased, this trend is expected to continue for the time being.

According to the announcement by the Korea Federation of Savings Banks on the 18th, the fixed deposit interest rate for savings banks stands at 4.07% per annum (based on a 12-month maturity) as of that day. It was 4.24% per annum on the same day last month, marking a 0.17 percentage point drop in one month.

Industry leader SBI Savings Bank lowered its 12-month fixed deposit interest rate from 4.0% to 3.9% per annum, a 0.1 percentage point cut, starting from the 16th. Daol Savings Bank also reduced the interest rate on its 'Fi Fixed Deposit' from 4.2% to 4.15% per annum, a 0.05 percentage point decrease, starting from the 13th. This savings bank had already cut its fixed deposit interest rate by 0.1 percentage point on the 3rd, making two rate cuts this month alone. SangSangIn Savings Bank also lowered its fixed deposit rate twice by 0.1% each time this month, now offering a 4.0% annual interest rate on fixed deposits.

The relay of interest rate cuts on savings bank deposits is due to a reduced need for fundraising. The industry, which had steadily raised rates to secure liquidity ahead of the maturity of high-interest special products offering 6-7% per annum in the second half of this year, is now lowering rates again as it has sufficiently secured funds. According to the Bank of Korea, the fixed deposit interest rate for savings banks, which was in the 3% range in March this year, rose to 4.27% per annum by last September. Consequently, the balance of savings bank deposits (end balance) gradually increased from KRW 114.526 trillion in May to KRW 117.8504 trillion in September.

The trend of reducing loans this year is also one of the causes. As funding costs rose due to prolonged high interest rates, the industry significantly reduced loan volumes fearing negative interest margins. Since savings banks raise funds through deposits, a reduction in loans leads to a corresponding decrease in deposits. The loan balance of savings banks, which was KRW 116.2238 trillion in November last year, fell to KRW 108.1741 trillion by last September.

An official from a major savings bank explained, “Due to loan-to-deposit ratio regulations, banks must hold more deposits than loans, but with total loans decreasing, there is no need to aggressively attract funds.” He added, “It is highly likely that loan capacity will not recover next year, so the downward trend in interest rates is expected to continue for the time being.”

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