Bank bond yields fall due to US interest rate cut announcement
Savings deficit also reduces interest costs
Saemaul Geumgo suffered a bank run crisis last year.
‘I do high-interest rate business alone’ to recover reception
Deposits with interest rates in the 4% range are disappearing from commercial banks and savings banks. This is because market interest rates have fallen due to expectations of a cut in the U.S. benchmark interest rate, and the savings bank industry is continuing to experience large deficits. On the other hand, Saemaul Geumgo, which suffered a bank run (large-scale deposit withdrawal) crisis in July last year, is trying to attract customers with high-interest products in the late 4% range, and interest rates in the financial sector appear to be mixed this year.
According to the Korea Federation of Banks announcement on the 10th, as of this day, the interest rates on major term deposits with one-year maturity at the five major commercial banks, including KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Bank, were 3.55-3.70% per year. Until early November of last year, both the top and bottom were in the 4% range, but after two months, they fell to the mid-3% range.
The trend of lowering deposit interest rates is occurring across the banking sector. Sh Suhyup Bank’s ‘Sh First Meeting Preferential Deposit’, which currently has the highest deposit interest rate in the banking sector, lowered its interest rate from 4.25% to 4.12% from this day. The reason why deposit interest rates in the banking sector are falling is because bank bond interest rates are falling, reflecting expectations of base interest rate cuts in major countries such as the United States. The interest rate on one-year bank bonds (AAA, unsecured), which is the standard for calculating deposit interest rates, fell by more than 0.5 percentage points from 4.149% in early November last year to 3.612% on the 9th of this month. The financial authorities’ suppression of competition to receive high interest rates, such as abolishing the limit on bank bond issuance, also had an impact.
As interest rates fall, the number of customers leaving bank term deposits is increasing. As of the end of last year, the balance of term deposits at the five major commercial banks was 849.2957 trillion won, a decrease of more than 19 trillion won in one month.
Even at savings banks, it has become difficult to find deposit products with an annual interest rate of 4%. The average interest rate for one-year maturity term deposits in the savings bank industry is 3.89% per year as of today. It has remained in the 3% range ever since the 4% level collapsed on December 27th of last year. This is unusual considering that savings banks usually attract customers by offering interest rates that are 0.8 to 1.0 percentage points higher than commercial banks. The savings bank industry, which recorded a net loss of 141.3 billion won as of the end of September last year, is reducing interest costs by lowering deposit interest rates.
On the contrary, Saemaul Geumgo continues to conduct high-interest rate business on its own in order to recover its deposits. According to the Bank of Korea’s economic statistics system, Saemaul Geumgo’s interest rate on one-year term deposits based on new transaction amounts as of November last year was 4.49% per annum, the highest in the financial sector.
In fact, as of this day, some Saemaul Geumgo are offering an interest rate of 4.60% per annum on one-year maturity products such as ‘Term Deposit’ and ‘Dream Dream Revolving Term Deposit’. The one-year maturity ‘Block Deposit’ of Yeonghae Saemaeul Geumgo in Yeongdeok-gun, Gyeongbuk and Hyeongok Saemaul Geumgo in Gyeongju-si, Gyeongsangbuk-do, which offers an annual interest rate of 4.70%, is currently discontinued due to reasons such as limit exhaustion.
Accordingly, the received balance is also increasing. As of the end of October last year, Saemaul Geumgo’s receipt balance was calculated to be 249.4145 trillion won, an increase for three consecutive months. An official at Saemaeul Geumgo explained, “The gradual increase in incoming balances was maintained in November and December of last year,” adding, “After the bank run crisis, some vaults launched event products to attract customers.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.