Deposits surge at Korean banks after BOK’s rate cut

(Yonhap)

South Koreans are quickly signing up for time deposit and installment savings products at major banks as they hope for higher interest rates before commercial lenders begin to lower deposit interests following the Bank of Korea (BOK)’s rate cut.

According to financial industry sources on Monday, the outstanding balance of deposits at the five major banks stood at 2,044 trillion won ($1.48 trillion) at the end of October, up by 11 trillion won from the previous month.

The five banks are KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH NongHyup Bank.

The increase was mainly driven by time deposits, which rose from 930 trillion won to 942 trillion won during the cited period.

In September, time deposits increased by less than 5 trillion won.

Installment savings also continued to grow, with balances at the five banks increasing by 910.2 billion won to 38.92 trillion won in October.

This is the seventh consecutive month of growth since April.

Demand deposits, on the other hand, which can be withdrawn on demand, fell by 10 trillion won to 613 trillion won from 623 trillion won. The trend suggests that financial consumers are prioritizing interest rates over liquidity.

Demand deposits generally offer low interest rates, but are valued for their flexibility.

For example, the base rate for demand deposits at the five banks is around 0.1 percent, making them popular for liquidity management. From the banks‘ perspective, they are low-cost funding instruments.

In August and September, demand deposits grew by more than 6 trillion won each month.

However, consumers are shifting to higher-yielding savings products following the BOK’s recent benchmark rate cut from 3.5 percent to 3.25 percent. The central bank’s first rate cut since May 2020 has led commercial banks to also lower deposit rates.

NH NongHyup Bank lowered interest rates on five types of savings deposits by 0.25 to 0.4 percentage points on October 23, while Woori Bank cut installment savings rates by 0.2 percentage points on October 23 and November 1.

Financial experts, in the meantime, suggest that it is still a favorable period for consumers to open deposit accounts as the current rates in the 3 percent range are still high compared to the 1 percent rates that persisted for seven years from March 2015.