One-year corporate deposit rates at South Korean commercial banks have topped 4% annually as market interest rates rise at home and abroad. Analysts say deposit and lending rates will climb further for some time, with the Bank of Korea possibly raising its policy rate again this year and the yield on 30-year U.S. Treasuries surging to the 5.6% range.
Woori Bank raised the one-year rate on its WON Corporate Time Deposit to 4.09% on the 30th, according to financial industry sources on the 1st. That is up 0.44 percentage points from the end of August. The product's rate has risen steadily since May, gaining 1.12 percentage points so far this year alone.
Other banks are in a similar position. NH NongHyup Bank is applying a rate of 3.81% on the one-year term of its Corporate e Time Deposit, up 1.2 percentage points since the start of the year. Shinhan Bank's one-year corporate time deposit rate stands at 3.73%. Its personal time deposit rate is lower at 3.5%.
Banks draw roughly 80% of their deposits from corporate clients, meaning rates on a core pillar of bank funding are rising sharply. Lending rates are expected to follow with a lag. Financial debentures, another funding channel, also saw five-year paper (unsecured, AAA-rated) climb to 4.65% last month, setting a new high for the year.
External conditions offer little relief. The 30-year U.S. Treasury yield has risen to its highest level in 24 years, since 2002. The 10-year yield briefly reached 5.293%. Rising sovereign yields in major economies feed through to domestic market rates.
Lending rates are already moving up quickly. The weighted average mortgage rate at banks, based on newly extended loans, rose 0.18 percentage points from the previous month to 4.66% in August, according to the Bank of Korea. That was the highest level in three years and nine months, since November 2022. An official at a commercial bank said rising deposit rates lead to rising loan rates.
Corporate deposit rates breaking above 4% was a predictable step given the rise in market rates at home and abroad. As expectations build that the Bank of Korea could raise its policy rate again this year, some clients are also moving to lock in funds before market rates climb further. Industry watchers warn that higher deposit rates will eventually feed into lending rates, adding to the burden on borrowers who have stretched their finances to the limit to buy a home.
Time deposit balances at the five largest banks stood at 1,006 trillion won as of the 28th, according to financial industry sources. The figure was 939 trillion won at the end of last year but rose quickly from June as the stock market moved sideways. Time deposit balances passed 985 trillion won at the end of July before breaking 1,000 trillion won last month.
The roughly 70 trillion won surge in time deposit balances over nine months owes much to banks competing to raise rates. The one-year rate on Woori Bank's WON Corporate Time Deposit has risen 1.12 percentage points this year alone to 4.09%. Its WON Plus Deposit for individual clients rose 0.65 percentage points over the same period to offer 3.50%. NH NongHyup Bank and Shinhan Bank also raised rates by as much as 1.1 to 1.2 percentage points, pushing their one-year deposit rates well above the 3.7% range.
Banks are actively courting corporate funds, which account for about 80% of time deposit balances. Because the amount deposited by each client is large, banks have an incentive to offer generous rates to secure funds in a single transaction. Corporate clients also often negotiate rates with individual branches, so actual rates are frequently higher than posted rates. One financial industry official said corporate clients bring additional business in lending, retirement pensions and foreign exchange once a relationship is established, and that the range of resulting business opportunities is another reason their rates run higher than those for individuals.
Deposit rates for individual clients are rising as well. The one-year rate on NH NongHyup Bank's NH All One e Deposit stands at 3.55%, up 0.30 percentage points from the end of August. The rate on Industrial Bank of Korea's IBK Gulligi Account rose 0.26 percentage points in September alone. Banks are also sharply raising rates on short-term products and rolling out high-rate special offerings. Shinhan Bank raised the three-month rate on its Sol Convenient Time Deposit to 3.10% from 2.85%. Woori Bank is running a special one-month sale in October of its Together Installment Savings 2 product, which offers a 9% rate.
Bond market rates are also unsettled, and banks are expected to keep raising deposit and lending rates through the rest of the second half. The yield on five-year financial debentures (unsecured, AAA-rated), the benchmark for fixed-rate and hybrid mortgage rates at banks, has moved around 4.6% recently, up from 3.49% at the end of last year. The 30-year U.S. Treasury yield topped 5.6% in intraday trading on the 29th local time, its highest in 24 years, adding upward pressure on domestic market rates. A financial industry official said continued rate increases could make higher issuance rates on bank debentures unavoidable, which would show up as a chain of loan rate increases.
Rising deposit rates inevitably feed into lending rates with a lag. Deposit maturities have also been shortening recently, which is why Shinhan Bank raised its three-month deposit rate by 0.25 percentage points the previous day. That pattern results in deposit and lending rates rising further in stages. An official at Shinhan Bank said client demand for managing funds on a short-term basis has increased as the market enters a period of rising rates.
Lending rates are already climbing quickly. The average rate on household loans newly extended by the five largest banks last month was 4.90%, up 0.19 percentage points from the previous month, according to the Korea Federation of Banks. Fixed-rate mortgages at the five banks currently range from 4.91% to 6.88% annually. Some in the financial industry expect the top end of mortgage rates to exceed 8% within the year. That would translate into heavier interest burdens for households. Household loan balances at deposit-taking banks stood at 1,022.9 trillion won as of the end of June. A 0.1 percentage point rise in rates would add 1.0229 trillion won in annual interest costs by simple calculation.
An official at a commercial bank said the prevailing view is that market rates will keep rising for some time, and that once rates on financial debentures and deposits go up, upward pressure on lending rates inevitably grows.
