By Kang Seung-woo
Despite the central bank’s upward trend in its key interest rate, commercial banks are reluctant to follow suit in deposit rates, as there are few time deposits with interest rates offering more than 5 percent.
However, they are quick to increase rates in lending, with their high-interest loans to small- and medium-sized enterprises (SMEs) taking up nearly half of them.
According to the Bank of Korea (BOK) and the banking industry Monday, among newly-opened time deposit accounts in May, those with interest of more than 5 percent per annum accounted for 0.4 percent, down 0.2 percentage point from the previous month.
The proportion was 10.8 percent in January last year, but since then has been hovering below 2 percent for 16 months.
In addition, deposits with annual interest of more than 6 percent have failed to surpass the 1 percent mark for 28 months since February 2009, with no account available since June last year.
The BOK has increased the benchmark rate by 1.25 percentage points since July last year to rein in soaring inflationary pressure.
Observers say that lenders are loathe to increase interest rates on new deposits because they still depend heavily on interest income, which accounts for about 80 percent of a bank’s profits.
Unlike deposits, banks’ lending with interest of more than 6 percent took a jump.
The loans to SMEs reached 44.3 percent in May, up from 42.1 percent in April. They have been on the rise in recent months. In November last year, lending registered 29.5 percent and it has remained over 40 percent since February.
Loans to households reached 17.2 percent in May, compared with 16.7 percent in April, marking a 13-month high.
However, lending to large companies dropped by 3.4 percentage points between April and May.
“As commercial banks are mainly focusing on raising lending rates, while refraining from touching deposit rates, the gap between deposit and loan rates has widened to more than three percentage points,” said an official of the banking industry.
“The top four banking groups are expected to rake in 9.8 trillion won ($93. billion) in net profit for this year, but they need to strengthen the role of financial intermediation rather than increasing dividends to foreign shareholders.”