Rising Deposit Interest Rates and the Burden on Young Borrowers: Impact and Concerns

Reporter Kim Nam-yi, Money Today | 2023.08.13 09:29

Loan interest rates posted on the outer walls of banks in downtown Seoul. /Picture = Newsis With the reappearance of the 4% deposit interest rate at the central bank, money is flocking to time deposits. Last month alone, more than 12 trillion won of money in the bank sector was concentrated in time deposits. The rising deposit interest rate is welcome, but the ensuing rise in the loan interest rate is a burden to the ‘young people (loans that attract even the soul)’. According to the Bank of Korea on the 13th, time deposits in banks increased by 12.3 trillion won last month compared to the previous month. This is the largest increase in time deposits on a monthly basis this year. As of the end of July, the balance of time deposits at banks increased to 957.7 trillion won.

The balance of time deposits at banks, which amounted to 944.2 trillion won at the end of last year, fell to 930.6 trillion won at the end of April due to a drop in deposit interest rates. The average interest rate for time deposits (based on the amount of new transactions), which was 4.29% at the end of last year, fell to 3.41% in April as market interest rates fell.

However, as interest rates rose again, the number of people looking for bank deposits has increased since last May. In June, the average time deposit rose to 3.65%. Bank A’s base interest rate for over 12 months and under 24 months rose by 0.35 percentage point (p) from 3.4% at the end of April to 3.75% as of the 11th.

Time deposits of 4% have also appeared again. SC First Bank’s ‘e-Green Save Deposit’ (12 months maturity) has a basic interest rate of 3.80%, and when the prime interest rate is added, an interest rate of up to 4.10% is applied. Woori Bank’s ‘our first transaction preferential time deposit’ can also receive an interest rate of up to 4.10%. In June, the proportion of new handling of time deposits in the 4% range of banks rose 10.6%p in one month to 14%.

In addition, the interest rates of the major time deposit products (one-year maturity) of the five major banks, including KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, are set at 3.65 to 3.85 percent. It is higher than or similar to the fixed deposit interest rate of internet banks such as Kakao Bank and K Bank.

The main cause of the rise in deposit interest rates in the banking sector is the rise in market interest rates, such as bank debentures, but the normalization of regulations on the loan-to-deposit ratio (ratio of loan balance to deposit balance), which was eased due to Corona 19, also seems to have had an impact. The loan-to-deposit ratio, which had eased to 105%, returned to 100% from last July. Banks have a greater incentive to increase deposits.

Savings banks are also nervous as commercial banks are raising deposit interest rates of around 4 percent. Interest rates are constantly rising to attract deposits. According to the Korea Federation of Savings Banks, the average interest rate of one-year time deposit products of all domestic savings banks rose to 4.06 percent on the same day after exceeding 4.0 percent in the middle of last month.

However, rising interest rates cannot be welcomed. An increase in the funding rate could lead to an increase in the lending rate. Rising market interest rates have already led to an upward trend in lending rates. In particular, the rise in interest rates on fixed-type (mixed-type) housing mortgage loans is remarkable due to the rise in long-term bond interest rates.

An official from the banking industry said, “Some time deposits can receive higher interest rates if signed up at the bank window, depending on the individual.” .

2023-08-13 00:29:02
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