Banks deposit interest rate rises up to savings

By Kang Seung-woo

Savings banks are in a lurch over an increase in project financing (PF) or property loans that have gone bad.

The growing rate of soured PF is in turn aggravating their cash flow, failing to offer competitive interest rates for deposits.

This is being worsened by regular banks, which are raising their rates for deposits.

According to the Bank of Korea (BOK) and industry sources, regular banks are now offering interest rates for deposits comparable to those at savings banks. As a matter of fact, the interest gap is the narrowest in 10 years.

A few savings banks’ deposit rates are even lower than those of banks because they can’t offer better rates, constricted by the need to restructure delinquent loan assets.

According to the BOK, the average interest rate of a one-year fixed deposit was 4.24 percent at a savings bank in June. The rate is just 0.52 percentage points higher than what the regular banks were offering.

Savings banks typically offer higher deposit rates by 1 percentage point or 2, but since March, the gap has been reduced from 1.27 to 0.52 percentage points.

The National Credit Union Federation of Korea, another nonbank lender, is in a similar situation, as the interest rate they offer now is only 0.53 percentage points higher than at regular banks for a one-year fixed deposit.

In April, the gap was 1.32 percentage points.

Meanwhile, the Industrial Bank of Korea (IBK) offers a fixed deposit product at the interest rate of 4.60 percent.

Hana Bank offers the lowest at 4 percent on term deposits.

Several provincial banks have also joined the high-rate policy, offering rates of up to 4.1 percent.

“To lure new customers, we have raised deposit rates following the BOK’s rate hike,” a bank official said.

Nonbanking institutions appear unable to shake off the hangover from the depressed PF loans.

“In terms of deposits, we want to match the aggressive schemes pursued by regular banks, but a lack of resources to replace PF loans prevents savings banks from going toe to toe,” an official of a savings bank said.