Banks are ramping up their efforts to attract deposits as the Bank of Korea has raised the benchmark interest rate for the first time in three and a half years, coupled with increased volatility in the stock market. The possibility of the central bank raising rates again sooner than expected has intensified competition among banks for securing deposits in the second half of the year.
According to the Korea Federation of Banks, the highest interest rate for 12-month time deposits among 19 banks is currently between 2.40% and 3.85%, nearing 4%. The top five banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—are offering rates ranging from 2.55% to 3.30%, with Shinhan Bank's 'Shinhan My Plus Time Deposit' providing the highest rate at 3.30%. Woori Bank's 'WON Plus Deposit' follows closely with a rate of 3.20%. This marks a significant increase in deposit rates, especially considering that just last month, finding time deposit products with rates above 3% was challenging.
The issuance of bank bonds has also surged significantly. According to the Korea Financial Investment Association, the total amount of bank bonds issued this year has reached 146.39 trillion won, a 45% increase compared to 101.32 trillion won during the same period last year.
This trend among banks reflects the rising market interest rates as they enter a period of significant rate hikes, and it is seen as a measure to prepare for future loan demand. As of July 16, the benchmark rate for one-year bank bonds (AAA) was recorded at 3.737%, up approximately 0.8 percentage points from 2.941% at the end of January.
Financial analysts suggest that as the Bank of Korea keeps the door open for further rate hikes, competition among banks for deposits is expected to intensify in the latter half of the year. Banks utilize customer deposits as a key source of lending and a stable funding method. When the benchmark interest rate rises, market interest rates also increase, necessitating higher deposit rates to secure funds. Currently, there are discussions in the market about the possibility of the Monetary Policy Committee raising the benchmark rate by an additional 0.25 percentage points in August or October following the increase in July.
However, the rise in deposit rates could lead to higher loan rates. If banks pay more interest and issue bonds at higher rates, their funding costs will increase. These costs are likely to be reflected in loan rates after a certain lag. Loan rates have already been rising sharply as the market anticipates the possibility of further rate hikes. As of now, the upper limit for fixed-rate mortgage loans at the top five banks is 7.52%, an increase of 0.42 percentage points from 7.10% at the end of May.
A financial industry official stated, "If the benchmark interest rate continues to rise, both market interest rates and deposit rates will increase, adding to the funding burden for banks. While depositors will benefit from higher rates, borrowers are likely to face increased loan interest burdens."
According to the Korea Federation of Banks, the highest interest rate for 12-month time deposits among 19 banks is currently between 2.40% and 3.85%, nearing 4%. The top five banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—are offering rates ranging from 2.55% to 3.30%, with Shinhan Bank's 'Shinhan My Plus Time Deposit' providing the highest rate at 3.30%. Woori Bank's 'WON Plus Deposit' follows closely with a rate of 3.20%. This marks a significant increase in deposit rates, especially considering that just last month, finding time deposit products with rates above 3% was challenging.
The issuance of bank bonds has also surged significantly. According to the Korea Financial Investment Association, the total amount of bank bonds issued this year has reached 146.39 trillion won, a 45% increase compared to 101.32 trillion won during the same period last year.
This trend among banks reflects the rising market interest rates as they enter a period of significant rate hikes, and it is seen as a measure to prepare for future loan demand. As of July 16, the benchmark rate for one-year bank bonds (AAA) was recorded at 3.737%, up approximately 0.8 percentage points from 2.941% at the end of January.
Financial analysts suggest that as the Bank of Korea keeps the door open for further rate hikes, competition among banks for deposits is expected to intensify in the latter half of the year. Banks utilize customer deposits as a key source of lending and a stable funding method. When the benchmark interest rate rises, market interest rates also increase, necessitating higher deposit rates to secure funds. Currently, there are discussions in the market about the possibility of the Monetary Policy Committee raising the benchmark rate by an additional 0.25 percentage points in August or October following the increase in July.
However, the rise in deposit rates could lead to higher loan rates. If banks pay more interest and issue bonds at higher rates, their funding costs will increase. These costs are likely to be reflected in loan rates after a certain lag. Loan rates have already been rising sharply as the market anticipates the possibility of further rate hikes. As of now, the upper limit for fixed-rate mortgage loans at the top five banks is 7.52%, an increase of 0.42 percentage points from 7.10% at the end of May.
A financial industry official stated, "If the benchmark interest rate continues to rise, both market interest rates and deposit rates will increase, adding to the funding burden for banks. While depositors will benefit from higher rates, borrowers are likely to face increased loan interest burdens."
* This article has been translated by AI.
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