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| A man passes by a bank's loan offers advertisement in Seoul, Monday. Yonhap |
By Yi Whan-woo
Commercial banks are under pressure to lower deposit interest rates to prevent excess cash inflow due to steep rate hikes delivered by the Bank of Korea (BOK), which in turn, squeeze non-banking financial firms with liquidity shortages.
The situation faced by the lenders is in stark contrast to what they have faced in past months when they were pressed to raise deposit rates over criticism that they reap huge interest margins and that such windfall profits should be shared with consumers.
"The banks are asked by financial authorities to refrain from excessive competition on deposit rates," a public relations member of staff from a lender said on condition of anonymity.
In particular, the employee noted that Financial Services Commission (FSC) Chairman Kim Joo-hyun expressed concerns over liquidity shortages among non-banking financial firms when he met CEOs of major banks nationwide, on Nov. 9.
The meeting took place in the wake of lost confidence in the debt and short-term money markets following a Gangwon provincial government-backed developer's failure to repay bonds and Heungkuk Life Insurance's unusual delay in exercising its perpetual bond repayment option.
These incidents dented the fund-raising capacities of securities firms and insurers as the investors in the bond market pulled out their money and put it in banks instead (in search of safe haven assets).
The banks have been offering deposit rates of 5 percent or higher for deposit accounts with a maturity period of one year, after the BOK delivered multiple rate hikes since August 2021 and the base rate was raised to 3 percent for the first time in 10 years.
Accordingly, the savings deposits in accounts with more than 1 billion won hit a record 787.9 trillion won ($580 billion) as of June.
The financial authorities, according to the sources familiar with the matter, are trying to curb the deposit rates, because they influence lending rates, including housing loan rates, amid the mounting burden on homeowners who are struggling with repayments.
"The higher the deposit rates, the higher the lending rates will grow over time," a source said, noting the upper range of the housing loan rates remains in the 7 percent range annually.
"Nevertheless, the banks can be perplexed by sudden demands to lower deposit rates following pressure to increase them," the source added.
Meanwhile, the net interest income of the five major banking groups ― KB, Shinhan, Hana, Woori and Nonghyup ― amounted to 182.1 trillion won since 2017, according to data released by Rep. Kim Sung-joo of the main opposition Democratic Republic of Korea (DPK).
The 2021 income totaled 44.9 trillion won, a 58 percent increase from 2017.
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