South Korean savings banks raised 12-month deposit rates to an average of 3.90% as of the 7th, up 0.55 percentage points in one month, with some institutions breaking the 4.6% threshold. The rate surge follows rapid deposit outflows to the stock market, forcing banks to defend liquidity amid a regulatory cap limiting loan-to-deposit ratios to 100%. The rate gap with commercial banks widened to 0.73 percentage points from 0.29 percentage points at the start of last month, reflecting intensified competition for deposits in a constrained lending environment.
Savings Banks Push Rates Above 4.6% Amid Deposit Flight
According to the Korea Federation of Savings Banks on the 7th, 79 savings banks nationwide posted an average 12-month deposit rate of 3.90%, a 0.55 percentage point increase from the previous month. Last month the highest rate among all deposit products stood at 3.73%, but 152 products now offer rates above 4%. Thirteen banks set base rates at 4.5% or higher, with HB Savings Bank offering 4.63% and Yegaram Savings Bank 4.60%. Commercial banks' 12-month deposit rates reached 3.17% on a maximum preferential basis as of the 7th, creating a 0.73 percentage point gap with savings banks. The gap stood at only 0.29 percentage points at the start of last month. Banks moved to defend deposits as maturity and early withdrawal funds rapidly exited to the stock market.
Raon Savings Bank Withdraws 4.6% Promotion After One Day
Competitive rate increases prompted some banks to retract special offers. Raon Savings Bank halted a 4.6% deposit promotion after one day last month. Banks face pressure to defend deposits as the loan-to-deposit ratio approaches the regulatory ceiling of 100%, but lending restrictions leave no outlet for excess inflows. Industry sources explained banks raise rates only enough to stem outflows before quickly withdrawing promotions. The legal maximum interest rate for personal loans already clusters near 20%, leaving limited room to pass on funding costs.
Industry Profitability Concerns Mount as Delinquency Risks Rise
Savings banks' financial capacity to support rate competition faces scrutiny. During the Legoland crisis, banks absorbed high funding costs while maintaining profitability, but consecutive losses have reduced loss-absorption capacity. The sector posted 4,173억원 in profit last year after two years of nearly 1조원 in net losses. Excluding approximately 1,800억원 in one-time securities gains from OK Savings Bank and Korea Investment Savings Bank in the first quarter of this year, ordinary income recovery remains limited. The sector's delinquency rate stood at 6% as of the end of last year, with the provision coverage ratio for substandard and below loans at 72.6%, both deteriorating continuously.
Regulatory Relief Calls Emerge as Loan-to-Deposit Cap Pressures Persist
Industry participants raised the possibility of reviving the loan-to-deposit ratio relief measure that ended in June last year. Financial authorities raised the cap from 100% to 110% in 2022 following Kangwon Jungdo Development Corporation's rehabilitation filing. Real estate project financing origination has effectively halted, while corporate lending faces intensified competition as all sectors converge under strengthened productive finance policies. NICE Credit Rating downgraded Hana Savings Bank's credit rating from A (negative) to A- (stable) in April, and revised the outlook for Korea Investment Savings Bank and Hanwha Savings Bank from stable to negative. An industry official stated that liquidity management necessitates rate increases as funds flow to the stock market, adding that regulatory relief for either lending or loan-to-deposit ratios appears necessary as even the 100% cap proves difficult to maintain.
FAQ
What caused South Korean savings banks to raise deposit rates above 4.6%?
Savings banks raised rates as deposits rapidly exited to the stock market, threatening the regulatory loan-to-deposit ratio cap of 100%. The average 12-month rate reached 3.90% as of the 7th, up 0.55 percentage points in one month, with HB Savings Bank and Yegaram Savings Bank exceeding 4.6%.
Why did Raon Savings Bank withdraw its 4.6% deposit promotion after one day?
Raon Savings Bank halted the promotion last month because lending restrictions left no outlet for excess deposit inflows. Banks raise rates only enough to prevent outflows before quickly retracting offers, as the loan-to-deposit ratio cap limits their ability to deploy additional funds.
How has the savings bank industry's financial health deteriorated?
The sector posted 4,173억원 in profit last year after two years of nearly 1조원 in net losses. The delinquency rate stood at 6% as of the end of last year, with the provision coverage ratio for substandard loans at 72.6%, both worsening continuously. NICE Credit Rating downgraded Hana Savings Bank to A- in April and revised outlooks for Korea Investment Savings Bank and Hanwha Savings Bank to negative.
