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When the base rate rises, the deposit rate rises… Banks Accepting Government’s ‘Realization of Receiving Rates’

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Commercial banks started raising the deposit rate on the same day as the base rate hike. As criticism of the realization of interest rates for deposits (deposits and savings accounts) has been pouring in, it has been accepted. However, some are concerned that the increase in deposits and savings accounts could encourage a rise in loan interest rates, which is already rapidly increasing.

According to the financial industry on the 28th, the four major commercial banks, KB Kookmin, Shinhan, Hana, and Woori, immediately raised interest rates on deposits and savings accounts in response to the Bank of Korea’s base rate hike. This is unusual compared to the one usually applied within a week after the base rate hike. The maximum increase was 0.4 percentage points, which was larger than the 0.25 percentage point increase for the base rate.

From the 29th, Shinhan Bank will raise interest rates for 36 types of time deposits and savings-type deposits by up to 0.40 percentage points. With this interest rate hike, the applicable interest rate for the flagship product ‘Hello, Nice to meet you’ will be raised to a maximum of 4.2% per annum with a one-year maturity. A Shinhan Bank official said, “In line with the recent rise in market interest rates and the Bank of Korea’s base rate hike, the interest rates for customers’ deposits and savings accounts have also been raised.”

KB Kookmin Bank will also raise interest rates for 26 types of savings deposits, including 17 types of time deposits, marketable deposits, and ‘KB pounding travel savings’, by up to 0.40 percentage points from the 29th. KB Kookmin Bank will raise interest rates for ‘KB Merchant Preferred Savings Savings’ and ‘Business Preferred Savings Savings’, which are preferential products related to small business owners, by up to 0.40 percentage points in order to overcome the corona virus.

Earlier, Woori Bank and Hana Bank also raised interest rates on deposits and savings accounts by up to 0.40 percentage points. From the 26th, Hana Bank raised interest rates on five types of savings accounts, including ‘main transaction Hana monthly compound interest savings’, by 0.25 to 0.40 percentage points. From the 29th, interest rates for 7 types of savings-type deposits and 6 types of time deposits will also be raised by 0.25 percentage points. Woori Bank also raised interest rates on deposits and savings accounts by up to 0.40 percentage points from the 26th. Interest rates on all 19 term deposits and 28 savings products rose.

Banks’ rate hikes seem to be the result of considering the base rate hike, market conditions, and pressure from the authorities. This is because customers were very dissatisfied with the situation that the deposit rate did not rise as the loan interest rate rose. The difference in the loan-to-deposit interest rate based on the balance of domestic banks stood at 2.14 percentage points at the end of September, the highest in 11 years since October 2010.

Jeong Eun-bo, head of the Financial Supervisory Service, told reporters on the 23rd, “We will not intervene in the interest rate decisions of loans and loans by banks, but we are closely monitoring the difference in interest rates between deposits and loans and looking into the cause.” Earlier, the Financial Supervisory Service convened deputy presidents of the banking sector to inspect the interest rate calculation system, and recently issued a consumer alert ‘caution’ in relation to the sale of savings and savings products that offer preferential rates. When selling special products for savings and savings accounts, the highest interest rate was stated in the core manual to promote high interest rates, but the interest rate paid to customers approaching maturity was only 78% of the highest interest rate (average of 21 products with maturity).

However, some observers point out that such an increase in interest rates is a factor that raises interest rates that are still high. An increase in the deposit interest rate is directly related to an increase in the loan interest rate as it serves as the basis for calculating the COFIX (financing cost index), which is the standard for variable mortgage loan interest rates.

Cofix refers to the weighted average interest rate of funds raised by eight domestic banks. When the interest rates on receiving products, such as deposits, savings accounts, and bank bonds, actually handled by banks are raised or lowered, they rise or fall reflecting this. Cofix is ​​announced once in the middle of every month, and if the receiving rate hike process continues until next month, the effect of the base rate hike reflecting this will be visible around mid-January.

An official from the banking sector said, “If the deposit interest rate is raised, customers who have deposited their deposits will be able to receive more interest, but the burden on borrowers will increase as the interest they have to repay will increase.”


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