The average interest rate for time deposits at savings banks has fallen to the low 3% range, nearly eliminating the interest rate gap with commercial banks. Savings banks traditionally offered higher interest rates than commercial banks to attract customers, but the narrowing of this gap has weakened their competitiveness. Savings banks are expected to focus more on managing soundness than on lending this year.
According to the consumer portal disclosure of the Korea Savings Bank Association published on the 3rd, the average interest rate for 12-month time deposits across 79 savings banks in the country was recorded at 3.32%. The average interest rate in the savings bank sector has been declining for two consecutive years, down 0.64 percentage points compared to last year (3.96%) and 2.03 percentage points compared to 2023 (5.35%). The highest interest rate product also decreased from 4.3% last year to 3.5% this year.
The interest rates on time deposits at major savings banks are all in the low 3% range. For 12-month products, SBI Savings Bank offers an interest rate of 3.2%, OK Savings Bank at 3.21%, and Welcome Savings Bank and Korea Investment Savings Bank at 3.25%. A savings product from Accuon Savings Bank is relatively high among major savings banks at 3.3%. Savings banks providing the highest interest rate product at 3.5% include Dream, Daehan, and Baro, among regional small and medium-sized savings banks.
The interest rates at savings banks are not significantly different from those at commercial banks. As of this day, the 12-month time deposit interest rates for the five major commercial banks, including KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NongHyup Bank, are between 3.0% and 3.3%. The average interest rate for the same product from the previous month ranged from 2.92% to 3.39%. The interest rates on time deposit products from SBI and OK Savings Banks fell even below the basic interest rates of Woori Bank and NongHyup Bank.
There are various reasons why savings banks are not focusing on deposits recently. First, there is not much expectation regarding the handling of loans. The outlook for the real estate market, where savings banks primarily lend, remains unfavorable this year, coupled with a grim outlook for the real economy. Additionally, with forecasts predicting a decline in the creditworthiness of the working-class as the economy deteriorates, savings banks, which need to resolve arrears, see no reason to raise interest expenses to increase personal loans.
Moreover, the goal of the savings bank industry this year is to strengthen soundness. With the worsening business environment that began last year expected to continue this year, the priority is on rapidly increasing real estate project financing (PF) management and the sale of non-performing loans. According to the Korea Savings Bank Association, the average arrears rate among 79 savings banks nationwide was 8.73% in the third quarter of last year, up 0.37 percentage points from the previous quarter. Oh Hwa-gyeong, chair of the Korea Savings Bank Association, also noted in the New Year's address that the savings bank industry will put all efforts into managing real estate PF and household loans stably this year.
A representative from the savings bank industry said, "While the situation may vary by bank, the reason for savings banks to actively engage in business has diminished, so it is expected that the interest rates for savings and deposits at savings banks will be at the level of commercial banks this year," adding that, "As the financial authorities have consistently demanded soundness management since last year, all savings banks are expected to focus on soundness and liquidity management rather than deposits."