Deposit rates fall below the policy rate…loan-deposit rate spread widens again

Last month deposit rates fell for the 11th consecutive month. They dropped to a level below the policy rate for the first time in four months. Meanwhile, loan rates remained at the same level as the previous month, widening the gap between deposit and loan rates.

According to the "weighted average interest rates of financial institutions" statistics released by the Bank of Korea on the 30th, the savings deposit rate (on a new business basis) at deposit-taking banks in August fell from an annual 2.51% to an annual 2.49%, down 0.02% percentage points. It has fallen for 11 consecutive months since October last year and fell to a level at or below the policy rate (annual 2.50%). The reversal occurred again for the first time in four months since April.

By product, pure savings deposit rates such as time deposits (annual 2.48%) and market-type financial product rates such as financial bonds and CDs (annual 2.52%) each fell by 0.02% percentage points.

On the other hand, the loan rate remained at an annual 4.06%, the same as the previous month. Only deposit rates fell while loan rates did not. By item, the household loan rate fell to an annual 4.17%, down 0.03% percentage points from the previous month (annual 4.20%). Among household loans, mortgage loans remained unchanged at an annual 3.96%, while jeonse deposit loans (annual 3.78%) and general unsecured loans (annual 5.41%) rose by 0.03% percentage points and 0.07% percentage points respectively. Corporate loan rates in August fell to an annual 4.03%, down 0.01% percentage points. The decline continued for the third consecutive month.

The difference between the loan rate and the savings deposit rate based on newly acquired amounts at banks, that is, the loan-deposit rate spread, widened by 0.02% percentage points to 1.57% percentage points. Kim Min-su, a Bank of Korea team leader, said, "Although overall household and corporate loan rates fell, in July some low-interest loans were made to certain public enterprises, which lowered public and other sector loan rates, and the 0.16% percentage point rise in August had the greatest impact."

Deposit rates at non-bank financial institutions (based on 1-year time deposits/deposits) all fell at mutual savings banks (annual 2.99%), credit unions (annual 2.83%), mutual finance (annual 2.64%), and Saemaeul Geumgo (annual 2.80%). Loan rates also fell across all sectors.

Reporter Kang Jin-gyu josep@hankyung.com