© Reuters. “I put 300 million won in the bank for my old age and the interest is…”
Although the standard interest rate has risen, the financial authorities have ordered banks to refrain from raising the deposit interest rate, and large commercial banks are disappearing annual time deposits of 5%. In front of a bank branch in downtown Seoul, a notice on interest rates for time deposits is posted. / Yonhap News Following commercial banks, savings banks are also lowering deposit interest rates. This is because the financial authorities have put the brakes on raising the deposit interest rate to prevent the concentration of money in the banking sector, reducing competition in the financial sector. Depositors, including the elderly and people living on interest, are angry about the government-controlled finance, which freezes deposit interest rates while ignoring the rise in market interest rates following the rise in the base rate. Given the steep inflation, it is noted that depositors are losing money.
According to the Korea Federation of Savings Banks user portal on the 2nd, the average annual interest rate for one-year deposits in 79 savings banks nationwide was 5.52%, down 0.01 percentage point from the previous day. The two-year time deposit interest rate fell by 0.5 percentage points per week to 5.01 per cent per annum.
The average interest rate for one year deposits in savings banks reached a peak of 5.53 percent on the 23rd of last month, and remained at the same level until the day before. OK Savings Bank, the second largest in the industry, has reduced interest rates for large deposit products such as the new ‘mid-term OK term deposit’ (-0.70% points) and ‘OK Corporation Daebak Bankbook’ (-1.0% points ) over the past month. Sangsin Savings Bank lowered its revolving time deposit interest rate from the maximum annual rate of 6.1 percent to 5.9 percent.
In the banking sector, fixed deposits of 5% per annum have disappeared. On the 13th of last month, Woori Bank’s ‘Woori WON Plus Deposit’ interest rate was reduced, being the first to break through the ‘5% annual rate’ among the five major commercial bank time deposits at 5.18% per annum. to 4.98% per annum on the same day. Kookmin Bank’s ‘KB Star Term Deposit’ also took a step back to 4.70% after recording an annualized rate of 5.01% on the 14th of last month.
Although the deposit interest rate has risen this year due to the effect of the base rate increase, the real interest rate is negative given the steep inflation rate. In October, deposit bank deposit interest rates were 4.01%, the highest in 13 years and 9 months. However, the consumer price index rose by 5.7% year on year in the same month, and the real interest rate was recorded as -1.69%. This means that even if you leave your savings in the bank, you will incur losses due to inflation. Kang Hyeong-gu, secretary general of the Federation of Financial Consumers Federation, said, “If the deposit interest rate is withdrawn during the interest rate increase, the damage will be to retirees and the elderly who live on interest deposit increases.” ‘New administration’ shakes up the financial market
Result of pressure from the financial authorities… Savings banks also reduce deposit rates As the financial authorities put the brakes on raising deposit rates on the grounds of ‘hardening cash flow’ in the money market, and then start monitoring rates loans, voices worrying about ‘government rule’ are increasing. in the financial industry. Criticism arises that the intervention of financial authorities to curb the increase in market interest rates following the increase in the base rate not only causes damage to depositors but also causes chaos in the financial market. ○ Concerns about the distortion of market interest rates are growing According to the financial sector on the 2nd, the Bank of Korea raised the base rate by 0.25 percentage points on the 24th of last month, but the bank deposit interest rate is actually falling. Savings banks are scrambling to lower deposit rates as banks give up deposit competition by lowering deposit rates after the warnings from financial authorities. Deposit interest rates in large savings banks, such as OK, Daol, Ecuon, and Sangsangin, have decreased to the level of 5% per year, and in commercial banks, time deposits in the 5% per year disappear.
Although the benchmark interest rate has continued to rise this year, the real interest rate after taking inflation into account has turned negative since last year (-1.42%) due to the steep increase in inflation. The real interest rate, which is the deposit interest rate for savings deposits minus the inflation rate in deposit banks, fell to -3.59% last June. Even if you deposited and deposited in the bank, you didn’t get interest that matches the increase in inflation, so you actually suffered a loss. In October, as the bank deposit rate rose to 4.01% per annum, the real interest rate narrowed to -1.69%. Mr Kim, a retiree in his 70s who deposits 300 million he won in the bank for his old age, said, “Even if the annual interest rate is 4%, after deducting interest income tax (15.4%), the actual interest in hand is only 10 million earned per year.” It’s a tight situation for a couple to live in,” he said.
It is also debatable that the financial authorities are trying to put pressure on individual financial companies to lower their lending rates by monitoring their lending rates. The increase in interest rates on loans had the biggest impact on the increase in the COFIX (funding cost index), which is an indicator rate for variable rate loans which account for 70% of total household loans. In October, COFIX (based on new handling) recorded a record high of 3.98%. A financial sector official pointed out that “a reduction in lending rates that goes against the market rate of interest will interfere with the normal business operations of banks, cutting into the interests of shareholders as well as causing distortion in the financial market .” ○ ‘Money supply corruption and household debt’ Financial authorities are taking the card to stop the increase in deposit and loan interest rates as a desperate measure to stop the concentration of money in the banking sector and manage household debt at the same time. The balance of time deposits in banks in October was 931.6 trillion won, up 56.2 trillion won from September. This is the biggest increase ever. The more high interest deposits that pay higher interest rates, the higher the bank’s funding costs. The authorities believe that the vicious circle of increasing bank deposits with high interest rates → higher COFIX → higher interest rates on loans needs to be controlled.
If the loan interest rate rises, household debt will increase further, reaching 1,756.8 trillion won (excluding credit card payments) at the end of the third quarter of this year. The Bank of Korea analyzed that for every 0.25 percentage point increase in interest rates, the interest of all borrowers increases by about 3.3 trillion won. The fact that, although the loan interest rate continues to rise, if only the deposit interest rate goes backwards, the damage to financial consumers will increase is also noted as a background to The authorities regulate not only the deposit interest rate but also the loan interest. rate.
Correspondent Kim Bo-hyeong/Binnansae kph21c@hankyung.com
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