Korean banks are stepping up efforts to stem deposit outflows as the "money move" phenomenon spreads amid a booming stock market. While commercial banks are courting investment demand with structured deposits such as principal-protected equity-linked deposits (ELDs), regional banks are focusing on customer retention with products offering interest rates in the mid-3 percent range.
According to the financial industry on Friday, major regional banks have recently moved deposit products yielding around 3 percent to the front of their lineups to bolster their funding competitiveness. With the KOSPI's rally and recovering investor sentiment driving deposit and savings funds into the stock market, banks are seeking to defend against customer outflows.
The highest-yielding product among regional banks is currently Jeonbuk Bank's "JB 123 Time Deposit," which offers a top rate of 3.41 percent. It is followed by Gwangju Bank's "Good Start Deposit" at up to 3.39 percent, BNK Kyongnam Bank's "The Deundeun Deposit (Season 2)" at up to 3.30 percent, and BNK Busan Bank's "The Special Time Deposit" at up to 3.20 percent.
These rates are markedly higher than the late-2 percent average that represented the top regional bank rates in the first quarter of last year. They also stand as much as nearly 0.5 percentage points above the representative time deposit rates of the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup — which are hovering between 2.90 and 2.95 percent.
Commercial Banks Roll Out ELDs in Succession, Stoking Rate Competition
As commercial banks move to absorb investment demand through ELD products, the trend is further fueling special-rate competition among regional banks. ELDs guarantee principal while investing only the interest portion in stock index options such as the KOSPI 200. Because they offer the potential for higher returns than time deposits during market upturns, they are widely regarded as a representative "medium-risk, medium-return" product. Kookmin, NongHyup, and Industrial Bank of Korea have recently launched ELD products in succession, and BNK Busan Bank has also moved to respond to the market through an ELD offering.
Adding to the pressure, the growing likelihood of an additional rate hike by the Bank of Korea is expected to further intensify rate competition among banks. Hawkish signals suggesting an additional rate hike emerged from the Monetary Policy Board meeting held the same day, and market interest rate pressures are expected to mount further.
Industry observers believe that if the stock market's strong momentum continues, banks' deposit competition and the expansion of high-yield special offers are likely to persist for some time. "The money move phenomenon is a factor stimulating deposit competition in the banking sector," a financial industry official said. "If the stock market boom continues, banks' responses will follow."
