▲ Deposits (File photo)
The proportion of newly issued time deposits carrying annual interest rates of 4% or higher at domestic banks has risen to double digits for the first time in two years and nine months.
This is the result of commercial and internet-only banks engaging in rate competition by introducing special products amid rising market interest rates.
As lending rates also climbed, the proportion of household loans subject to rates below 4% fell to a single digit.
According to an analysis of the Bank of Korea's weighted average interest rates for financial institutions statistics released today (Nov. 1), the proportion of time deposits newly handled by deposit banks with interest rates of 4% per annum or higher stood at 10.6% in September this year.
It surged by 10.1 percentage points in just one month from 0.5% in August.
This is based on newly handled amounts, not the number of accounts.
This marks the first time in two years and nine months since December 2023 (42.6%) that the proportion has exceeded 10%.
After plunging to 6.7% in January 2024, the figure had remained in the single digits ever since, lingering at the 0.1% to 1.0% level up until August this year.
The clear increase in deposits yielding 4% or more per annum in September appears to be a lagged effect following consecutive base rate hikes by the Bank of Korea's Monetary Policy Board in July and August.
The proportion of time deposits receiving interest rates of 3% or higher also expanded noticeably recently.
In September this year, deposits carrying rates between 3% and under 4% per annum accounted for 70.8%, which, combined with those yielding 4% or higher (10.6%), reached 81.4%.
The proportion of deposits yielding 3% or more stood at a mere 33.2% in May this year, but exceeded half at 57.2% in June, before expanding further to 67.4% in July and 69.8% in August.
Conversely, the proportion of deposits bearing rates below 3% dropped by 11.6 percentage points from 30.2% in August to 18.6% in September.
Those yielding under 2% accounted for a meager 0.3%.
Just a year ago in September of last year, 99.0% of new time deposits were concentrated below 3% per annum.
The segment that took up the largest share back then—rates of 2.5% or higher to under 3% per annum—shrunk from 62.7% to 12.4% in September this year.
The average interest rate on new time deposits also rose by 0.25 percentage points from 3.14% per annum in August to 3.39% in September.
Compared to September of last year (2.52%), it rose by 0.87 percentage points over the course of a year.
In particular, the interest rate on 1-year maturity time deposits, which are the flagship products of banks, increased by 1.03 percentage points from 2.54% per annum in September last year to 3.57% in September this year.
Assuming 100 million won is deposited for one year at the respective average rates of the two periods, the pre-tax interest increases by 1.03 million won, rising from 2.54 million won to 3.57 million won.
KB Kookmin Bank raised the 1-to-under-2-year maturity rate for the "KB Star Time Deposit" from 3.20% to 3.40%, and then to 3.50% per annum on September 14 and 21.
Shinhan Bank also successively raised the 1-year maturity rate for the "Sol-Pyeonhan Time Deposit" from 3.20% to 3.40% and 3.50% per annum on the 9th and 30th of the same month.
Hana Bank raised the rate for "Hana's Time Deposit" on September 10 and 22, and again on October 1.
Consequently, the 1-year maturity rate rose by 0.40 percentage points from 3.20% to 3.60% per annum in less than a month.
Woori Bank likewise raised the 1-year maturity rate for the "WON Plus Deposit" from 3.20% to 3.60% per annum across three occasions on September 10, 18, and October 7.
NH Nonghyup Bank also consecutively raised rates for the "NH All1e Deposit" and base rates for lump-sum deposits in September.
Last month saw continuous special-offer competition featuring interest rates hovering around 4%.
Shinhan Bank launched the "Super SOL Welcome Time Deposit" on October 6.
It is a product offering a maximum of 4% per annum by adding preferential rates of up to 0.40 percentage points—based on conditions such as logging into Super SOL and making a first salary transaction—to a base rate of 3.60% per annum for a 12-month maturity.
NH Nonghyup Bank introduced the "NH All1Bank 10th Anniversary Deposit" on October 13, which provides up to 3.90% per annum if preferential conditions are met.
When its initial sales limit of 500 billion won was exhausted within a week, it proceeded with a second round of sales on the same scale.
Woori Bank also launched the "Woori 369 Time Deposit" with a total limit of 2 trillion won on October 20.
At the time of its announcement, the 9-month maturity rate was 3.80% per annum.
The three internet-only banks—KakaoBank, K Bank, and Toss Bank—also introduced time deposits with rates in the upper 3% range through rate hikes or the launch of new products.
Among new household loans extended by deposit banks in September, the proportion carrying interest rates below 4% per annum plummeted to 9.6%, one-sixth of the 57.6% recorded in the same month last year.
This is based on newly handled loan amounts, not the number of loan cases.
This proportion reached 69.9% in July 2024, but dropped to 30.1% in June, 21.1% in July, and 12.9% in August this year.
Falling to the single-digit range is the first time in two years and ten months since November 2023 (5.6%).
Conversely, the proportion of household loans subject to interest rates of 5% or higher per annum surged more than fourfold from 7.2% in September last year to 31.6% in September this year.
Even compared to August's 20.0%, it jumped by 11.6 percentage points in just a month.
The largest interest rate bracket shifted over the year from 3.5% to under 4% per annum (43.2%) to 4.5% to under 5% per annum (38.5%).
Combining all loans with rates of 4.5% or higher accounted for 70.1% of new household loans.
The average interest rate on new household loans also approached 5%, recording 4.96% per annum in September.
Having risen for five consecutive months since April this year, it is 0.79 percentage points higher than in September last year (4.17%).
With fixed-rate mortgage loans surpassing variable-rate loans (4.76%) at 5.11% per annum, the composition of loans has also shifted.
The proportion of fixed-rate new mortgages shrank significantly from 91.5% in September last year to 34.2% in September this year.
As the proportion of variable-rate loans increased to 65.8%, the share of loans susceptible to future changes in market interest rates also grew.
Household loan interest rates based on outstanding balances, which include existing loans, likewise rose for nine consecutive months from 4.31% per annum at the end of last year to 4.58% per annum in September this year.
This shows that the upward trend has persisted not only for new loans but also for the average interest rate across all existing household loan balances.
It appears difficult for these elevated loan rates to drop significantly in the short term.
This is because the Bank of Korea keeps the possibility of additional rate hikes open amid high semiconductor-led growth momentum and inflation exceeding the target level (2.0%).
The repayment burden on vulnerable borrowers is also expected to persist.
BOK Governor Rhee Chang-yong stated during a parliamentary audit at the National Assembly on October 23 that he "agrees" with the assessment that it is difficult to easily return to an ultra-low interest rate era like in the past.
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