Starting from the 1st of next month, the deposit protection limit will be increased from 50 million won to 100 million won, while the financial sector is staying alert for a large-scale MoneyMove.
According to the financial sector on the 31st, starting from the 1st of next month, if it becomes difficult to pay deposits due to the bankruptcy of financial companies or mutual financial cooperatives, depositors will be protected up to 100 million won in principal and interest. Products with principal guarantees such as savings and time deposits will apply regardless of the time of enrollment. Retirement pensions, savings pensions, and insurance payments will also be protected up to 100 million won. This is the first increase in the deposit protection limit since 2001, a gap of 24 years.
Concerns have been raised that if the deposit protection limit is increased, funds deposited in the banking sector may flow to the second financial sector, such as savings banks. The outlook suggested that more people would deposit funds in the second financial sector, which offers higher interest rates, due to the increased protection limit.
Since May, financial authorities have formed a permanent monitoring task force to observe fund movements, but so far, there has been no occurrence of fund concentration. As of the end of last month, the deposit balance in the banking sector was 2,274 trillion 400 billion won, an increase of 3.5% compared to the end of last year. It has also increased by 2.1% compared to May 16, when the legislative notice was made about raising the deposit protection limit.
The deposit balance of savings banks was 100 trillion 900 billion won at the end of last month, an increase of 2.8% compared to the date of the legislative notice. Financial authorities have noted concerns about fund concentration between large and small savings banks, but so far, they do not see it as a major issue.
In the financial sector, forecasts suggest that there will not be a large-scale fund movement immediately, as the interest rate gap between banks and non-banks is not significant. According to the Bank of Korea's economic statistics system, the interest rate for 1-year time deposits for new transactions last month was 2.52% in the banking sector and 3.02% in the savings bank sector, a difference of 0.5 percentage points. However, as the maturity of deposits is concentrated in the 4th quarter of this year, there may be interest rate competition, including high-rate special offers to attract funds.