By Kim Jae-kyoung
Staff Reporter
Local banks are rushing to attract rich customers by beefing up a ``demarketing'' strategy in a bid to maximize profitability amid the prolonged economic slump.
Demarketing is an attempt aimed at focusing on one specific market segment while discouraging demand for a product in another segment where profit margins are not so attractive.
According to bankers, their strategies have recently been leaning toward high-end customers, the best example of which is that they offer differential rates according to deposit amounts.
HSBC Korea, the U.K. banking giant's Korean arm, recently cut its interest rate on savings deposits of less than 40 million won to 1 percent from 1.4 percent, while raising the rate on those with more than 50 million won to 2 percent from 1.6 percent.
``The rate adjustment is not a strategic move to attract rich customers but part of our routine campaign based on our business schedule,'' HSBC spokeswoman Seo Hyon-jin said. ``A couple of months ago we offered higher rates on smaller-amount deposits.''
SC First Bank, the Korean unit of U.K.-headquartered Standard Chartered Bank, is also giving preferential rates on larger deposits. The lender offers 2.5-percent interest on savings deposits of more than 50 million won, compared with only 0.1-percent interest on those of less than one million won.
Woori Bank also gives 3.75-percent interest on time deposits of 50 million won or higher, compared with 3.45-percent interest on those of less than 10 million won.
Banks are also moving to increase their private banking (PB) branches to offer better services for VIP customers, while closing or consolidating less-profitable general branches. Some banks, such as Kookmin, provide PB services only for super-rich customers.
Woori Bank plans to set up around 100 PB branches in the next few years while closing down around 30 branches this year. Kookmin and Shinhan have shut down or consolidated 60 and 104 branches, respectively, so far.
``It is inevitable that banks put more focus on PB customers as they contribute much more to banks' total profits,'' a Seoul banker said.
Market analysts, however, said that although banks deny it, it is highly probable that offering differential rates and strengthening PB business is part of a demarketing strategy aimed at attracting rich customers to enhance profitability.
``One of the primary purposes of the demarketing strategy is to secure high-end customers to manage risks and maximize profitability,'' a market analyst said.
``With low interest rate and lingering uncertainties, banks are moving to focus on a more-profitable market segment,'' he added. ``I think that in a broad sense, providing differentiated services based on past track records and credit status can be seen as demarketing.''