From September 1, the deposits insurance limit has been increased to 100 million won. It was anticipated that a 'money move' phenomenon, which sees funds flow to savings banks with higher deposit interest rates than banks, would occur due to the changes in the system; however, dramatic effects have not been seen. On the contrary, industry sources lament that more savings banks are now suffering from 'negative margins' as deposits increase while loans decrease due to financial authorities' loan regulations.
According to the Bank of Korea's economic statistics system on the 1st, the deposits balance of 79 savings banks nationwide recorded 99.5873 trillion won last March, falling below 100 trillion won for the first time in eight months. It also recorded 99.5159 trillion won in June. In July, the deposits balance recorded 100.9 trillion won, successfully reclaiming the 100 trillion won mark.
The increase in deposits at savings banks is thanks to active recruitment efforts. Despite rising interest rates, the average interest rate for 12-month fixed deposits at savings banks rose from 2.96% annually last April to over 3% last month. In contrast, the 12-month fixed deposit rates at commercial banks were between 2.39% and 2.48%, with more than a 0.5 percentage point difference from savings banks. Retaining deposits is largely aimed at attracting capital to meet the demand for maturing savings and deposits worth about 50 trillion won that will mature by the end of this year.
The problem lies with the stagnant loan balance. Due to investors already moving to savings banks with higher interest rates, expectations for an increase in deposits resulting from the higher insurance limit are not significant; however, the explanation from the savings bank industry is that even with increased deposits, there is no capacity to lend. To maintain profitability, loans need to increase with rising deposits, but the savings banks' operating environment is challenging due to government loan regulations.
According to the Bank of Korea, as of the end of June, the loan balance of savings banks was 94.9746 trillion won, the lowest level since September 2021 (93.3669 trillion won). After recording 97.9462 trillion won last December, it has shown a decline for seven consecutive months. In addition, financial authorities are demanding the second financial sector address the non-performing assets of real estate project financing. In such circumstances, it is also difficult to extend loans.
It is rare for deposits to increase while loans decrease, and this leads to negative revenue. Continuously taking in deposits could worsen profitability due to interest costs. Some savings banks are accepting deposits while considering negative margins, and this situation is expected to continue until the end of the year.
A representative from a savings bank noted, "The opposing trends of deposit and loan balances were evident only during the savings bank crisis, but I don't expect the loan balance to increase until the end of the year," adding, "This is because new loans are being minimized due to the 100% loan-to-deposit ratio regulation and management of arrears rates."