Time deposit rates at commercial banks are rising quickly. As deposit rates rise and the Bank of Korea's monetary policy committee may raise the base rate again next month, the lending rate is also expected to go up.
According to the Korea Federation of Banks on the 28th, the average rate on 12-month time deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 3.15%, up 0.39 percentage points (p) from the average rate offered in the previous month (2.76%).
Banks expect deposit rates to rise for the time being. The previous day, Shinhan Bank rolled out a senior special deposit product with a top rate of 3.5% a year, and KB Kookmin Bank introduced a group-purchase deposit with a top rate of 3.3% a year.
Typically, when the base rate rises, bank bond yields—banks' main funding tool—rise, so banks raise rates on deposit-taking products to attract funds. According to the Korea Financial Investment Association's Bond Information Center, the yield on one-year bank bonds (unsecured AAA) stood at 3.662% per year as of the 27th, extending a months-long climb.
Higher deposit rates lead to higher lending rates. The Cost of Funds Index (COFIX), which serves as the benchmark for variable-rate household loans such as mortgage loan and unsecured credit loans, is calculated by reflecting the rates on deposits and installment savings that banks offer, as well as bank bond yields. If this month's higher deposit rates are reflected, the August COFIX could rise further.