Savings banks see savers scurry as rate gap narrows

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Savings banks see savers scurry as rate gap narrows

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Savings banks relied on their high interest rates to attract mid-to-low income earners away from other lenders in the past, but customer bases have declined recently in tandem with falling rates after they were hit by a series of scandals.

Their average deposit interest rates slipped to a median 3.45 percent on Friday, down from 4.47 percent last April, narrowing the gap with regular banks’ rates to just 0.17 of a percentage point.

This shrinking advantage, coupled with the fact that over 20 savings banks have had their operations suspended since early 2011 due to their poor financial conditions, has sent savers scurrying for bigger banks that are viewed as being more stable and trustworthy.

According to statistics provided by the Korea Federation of Savings Banks, total deposits at savings banks fell by more than 20 trillion won from October 2011 to the same month last year, when the total stood at 45.54 trillion won ($43.06 billion).

Park Sam-kyun, the 43-year-old owner of a Japanese restaurant in Seoul’s Gwangjang-dong, is a case in point.

When Park had a fixed-deposit account at a savings bank that matured last month, he withdrew all of his funds and opened a new account at a bigger bank.

“The only reason I put my money in a savings bank in the first place was that the annual interest rates were between four and five percent, so the return was higher than at other banks,” Park said. “Now this figure has slipped to the 3 percent range. The gap between savings and big banks has shrunk considerably and I felt that it would be safer to put my money at big lender rather than a savings bank, which may be in a poor condition financially and could have its operations suspended at any time.”

Interest rates at some savings banks have already dipped into the 2 percent range.

Shinhan Savings Bank, an affiliate of Shinhan Financial Group, this week lowered its interest rate for a one-year fixed deposit to 2.9 percent, down from 3 percent. Yehanbyoul Savings Bank, a bridge bank run by Korea Deposit Insurance, has lowered its rate to 2.9 percent from 3.1 percent.

The average rate dipped into the 4 percent range for the first time in May 2011 and has been steadily declining ever since.

“We had no option but to lower our rates for fixed-rate deposits as the trend of reversed margins [where lending rates are lower than deposit rates] continues,” said an employee at Shinhan Savings Bank. “For the time being, we will keep our deposit rates low.”

Some analysts say savings banks may need to diversify their revenue sources to stay afloat as they have already seen huge losses after granting project-financing loans.

The possibility of the financial regulator suspending more savings banks citing bad management and the threat of liquidity crunches is turning customers away, market observers said.

So far 24 savings banks have had their operations suspended since 2011. Many suffered due to their investments in real-estate developments and other forms of mismanagement.

W Savings Bank and Gyeonggi Savings Bank were both suspended in December in the financial regulator’s latest crackdown.

Shilla Savings Banks and Seoul Savings Banks were ordered to improve their management systems that same month and could also be shut down temporarily if they fail to comply and shore of sufficient capital bases by February.

“Unless we find a new direction, or revenue stream, the low interest rates will continue,” said an executive at a local savings bank.




By Kim Mi-ju [mijukim@joongang.co.kr]

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