Deposit Rate Falls to 13-Year Low in March
By Kim Jae-kyoung
Staff Reporter
The nation's savings deposit interest rate at banks dipped to its lowest level in more than 13 years as a result of the central bank's aggressive credit easing campaign to minimize the economic downturn.
The Bank of Korea (BOK) reported Sunday that the average interest rate for banks' deposit products, excluding demand deposits, came to 2.97 percent in March, down 0.26 percentage points from the previous month, and the lowest level since January 1996, when it began tracking related data.
The banks' average lending rate also fell, by 0.07 percentage points to 5.5 percent last month, the lowest level in 42 months ― since August 2005.
``A continuing fall in deposit and lending rates came as interest rates on certificates of deposit (CD) declined due to the central bank's steep rate cuts,'' a BOK economist said. CD rates are the benchmark for banks' interest rates. CD rates fell by 0.22 percentage points to 3.03 percent last month.
The central bank has slashed its key rate by a combined 3.25 percentage points to a record low of 2 percent since last October.
But the mortgage rate at banks rose in March for the first time in five months, as banks raised spreads between mortgage rates and CD rates to improve profitability. Mortgage rates are determined by adding spreads to CD rates.
In the meantime, banks' loan-deposit spreads narrowed to its narrowest in more than four years last month.
The difference between banks' lending and deposit rates at the end of March stood at 1.73 percentage points, down from 2.19 percent in February and 2.4 percent in January, the least since October 2004.
``With loan-deposit spreads narrowing, banks increased spreads between mortgage rates and CD rates while cutting deposit rates sharply,'' a market analyst said.
``Local banks' profitability deteriorated sharply over the past year as they had to set aside a large amount of loan loss reserves and shore up their capital bases in the wake of the prolonged economic slump,'' he added.