As the interest rates on deposits and savings accounts are lowered by banks and savings banks, those interested in financial technology (savings + financial technology enthusiasts) are flocking to mutual finance. While savings banks, which typically attract financial technology enthusiasts with high interest rates compared to commercial banks, have been unable to attract deposits due to the need to manage defaults in real estate project financing (PF) loans, mutual finance has become popular by offering high-interest special sales.
According to the Bank of Korea's economic statistics system on the 20th, the deposit size of mutual finance, including Saemaul Geumgo and credit cooperatives, steadily increased in the second half of last year and surged sharply at the beginning of this year. The deposit balance of mutual finance, which was 906 trillion 609.8 billion won in January this year, reached 917 trillion 804 billion won as of March. Over 10 trillion won flowed into the sector in two months. Notably, the growth of mutual finance, including NongHyup, was remarkable, with the deposit balance rising from over 508 trillion won at the beginning of the year to 516 trillion won at the end of March. Of this, NongHyup's deposit balance accounted for the majority at 462 trillion won.
During the same period, the deposit size of savings banks was recorded at 99 trillion 587.3 billion won as of March. The deposit balance of savings banks has fallen below 100 trillion won for the first time in eight months since July last year when it was 99 trillion 912.8 billion won. The decline in deposits is similarly seen in banks. According to the financial sector, the deposit balance of banks was 919 trillion 100 billion won at the end of last month. After dropping from 938 trillion won in February to around 922 trillion won in March, the balance continued to decline, falling to around 919 trillion won last month.
The reason that financial technology enthusiasts are flocking to mutual finance is because of special sale products. Both commercial banks and savings banks are maintaining deposit rates in the 2% range, and with expectations that the Bank of Korea will lower the base rate further in the second half of this year, mutual finance in various regions is offering regular deposits in the 3% range and special sales of 6-7%. As of the previous day, most regular deposits at credit cooperatives maintained rates around 3.4%, while last week, Saemaul Geumgo's Neulpureun Sasang Geumgo sold 12-month deposits at a rate in the 7% range and Daegu Jeil Geumgo offered 12-month deposits in the 6% range, generating popularity.
The issue of trust in the second financial sector is a thing of the past. Financial technology enthusiasts are aware of the deposit protection limit of 50 million won in the second financial sector, so they move their deposits around various places within this limit. Additionally, the fact that if one joins as a member or quasi-member of a mutual finance institution, they can receive tax benefits up to a combined deposit limit of 30 million won for all members is also a factor worth utilizing.
The increase in the deposit protection limit is expected to further strengthen this trend. The Financial Services Commission announced on the 15th that it would legislate to raise the deposit protection limit to 100 million won. According to the Korea Financial Research Institute, the analysis suggests that raising the deposit protection limit could result in a transfer of funds to the second financial sector amounting to 16-25% of total deposits. However, this year, the savings banks sector has been unable to focus on deposits due to managing PF defaults, resulting in mutual finance reaping indirect benefits.
A mutual finance industry official noted, "It is natural for deposits to flow into the second financial sector during a rate cut, but recently, savings banks have been unable to release deposit products like special sales due to the government's policy efforts to address PF defaults" and added, "The mutual finance sector is considering various special sale products, taking into account the effects of raising the deposit protection limit."