Time deposit rates return to 3% range as savings banks move to stem fund outflows amid stock market rally

[Financial News] As the stock market rally that began early this year continues and the "money move"—a shift of funds—gathers pace, savings banks have started raising interest rates to defend their deposit base. Products offering time deposit rates above 3% are increasing rapidly, and special-rate products that had disappeared for a while are reappearing.
According to the Korea Federation of Savings Banks on the 14th, the average interest rate on 12‐month time deposits at savings banks stood at 3.01% per annum as of the 13th. This is up 0.19 percentage points in about two months from 2.82% in early December last year. Savings bank time deposit rates had fallen below 3% in August last year and dropped to as low as 2.67% around November 6. They climbed back above 3% this month, returning to the 3% range for the first time in roughly six months.
The spread of 3%‐range rates across time deposit products is also evident. Of a total of 307 time deposit products, 221 now offer rates above 3%. The highest rate is 3.26% per annum, available on Daebaek Savings Bank’s "Apple Time Deposit" and Must Samil Savings Bank’s "e Time Deposit" and "Non-face-to-face Time Deposit."
Special-rate products have also re-emerged this month. Joeun Savings Bank launched the "SB Toktok Time Deposit" with a special offering limit of 3 billion won, setting the rate at 3.20% per annum. NH Savings Bank has introduced its "NH Special Time Deposit (Non-face-to-face)" product, also offering 3.20% per annum, with a total cap of 20 billion won.
The savings bank sector’s move to raise rates is seen as an effort to retain funds that are flowing out into the stock market and other investments.
In fact, the Korea Composite Stock Price Index (KOSPI), which closed at 4,214.17 on the last trading day of last year, December 30, opened this year at 4,224.53 on January 2 and climbed to 4,309.63, continuing its upward trend. It then broke through the 5,000 level at the close on January 27, and surpassed the 5,500 mark on the 12th of this month. On the 13th, the KOSPI opened at 5,513.71 and fluctuated during the session, at one point rising to an all‐time high of 5,583.74. However, profit‐taking emerged later in the session, sending the index lower and it eventually closed at 5,507.01.
Buoyed by rising share prices, deposit balances at savings banks have been declining. According to the Korea Deposit Insurance Corporation (KDIC), customer deposits at the country’s 79 savings banks fell to 99 trillion won at the end of last year. This is the first time in about six months that the figure has dropped back below 100 trillion won, after standing at 99.5 trillion won at the end of June last year. Savings bank deposits had grown rapidly from around 80 trillion won in early 2021 through the base rate hike cycle from 2022 to 2024, but they began to decline last year.
A financial industry official noted, "When the stock market is strong, funds tend to move from deposits into equities," adding, "This kind of money move is likely to have contributed, at least in part, to the decline in savings bank deposits."
However, the rate hikes by savings banks cannot be described as aggressive. Rather than aiming for large-scale new inflows as in the past, they appear intended mainly to minimize the outflow of existing deposits and installment savings reaching maturity. This is because the sector still faces the fallout from bad loans in real estate project financing (PF), and its capacity to deploy funds is limited after unsecured lending was curbed following the June 27 real estate measures last year.
A savings bank official said, "At the moment, the sector’s top priority is managing asset quality, so there is little incentive to expand funding aggressively," and continued, "The mid‐ to low‐credit borrower segment is the last to feel the benefits of an economic recovery, so savings banks will likely maintain a conservative stance on both asset allocation and funding for the time being, while monitoring the resolution of PF exposures and the recovery in the real economy."
coddy@fnnews.com Ye Byung-jung Reporter