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Korea's corporate deposit race lifts Woori Bank's one-year rate to 4.09%
Woori Bank raised its one-year corporate deposit rate to 4.09% on September 30, up 1.12 points this year. With companies supplying about 80% of Korean bank deposits, that posted rate now sits within 0.6 points of what banks charged on new mortgages in August.
The Investor · Invest desk
What happened
- NH NongHyup Bank pays 3.81% on one-year corporate deposits, up 1.2 points this year, and Shinhan Bank pays 3.73%, leaving Woori's the only posted rate of the three above 4%.
- Time deposits at Korea's five largest banks reached 1,006 trillion won on September 28, up from 939 trillion won at the end of last year, with inflows quickening from June.
- Five-year unsecured AAA-rated bank debentures, another bank funding channel, climbed to 4.65% last month, a high for the year.
- Bank of Korea data show the average rate on new bank mortgages rose 0.18 points to 4.66% in August, the highest since November 2022.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- cost If banks protect their margins, the higher deposit bill falls on borrowers, including home buyers the paper describes as having stretched their finances to the limit.
- constraint August's mortgage average sits one hundredth of a point above the latest five-year bank bond yield, so lending at that price would barely cover bond funding.
- contradiction The paper puts corporate money at about 80% of all deposits in one passage and 80% of time deposits in another; on the narrower reading, less of total funding reprices at corporate rates.
Most of Woori's move is recent. The rate started the year at about 2.97% [1] and stood near 3.65% at the end of August [5]. That means almost 40% of this year's rise came in September [8].
Savers have been treated less generously. Woori's WON Plus Deposit for individuals rose 0.65 points this year to 3.50% [14]. The gap between what the bank pays a company and what it pays a person has widened from about 0.12 points in January to 0.59 points now [3]. The Seoul Economic Daily gives two reasons. Each corporate deposit is large, so a generous rate secures a lot of money in one transaction [17]. One financial industry official also told the paper that corporate clients bring lending, retirement pension and foreign exchange business once a relationship is set up, and gave that as another reason their rates run higher [16].
The bidding has bought volume. The five largest banks added about 67 trillion won of time deposits in nine months, a 7.1% rise [4], and the paper credits much of that to banks competing on rate [13].
The paper expects lending rates to follow with a lag [6]. An official at a commercial bank told it that rising deposit rates lead to rising loan rates [10]. The lag may be short. At the end of August, the average rate on new mortgages was about 1.01 points above Woori's corporate deposit rate. If loan pricing had stayed put through September, the deposit increase would have cut that gap to 0.57 points [6]. This compares one bank's posted rate with a market-wide loan average. According to the paper, corporate clients also often negotiate with individual branches and get more than the posted rate [15], so the gap banks actually face is probably narrower still.
Pass-through is the path the paper expects: borrowers pay higher loan rates and banks keep their margins. I'd expect that in the near term, given reported expectations that the Bank of Korea could raise its policy rate again this year [11]. The counter-case is that banks value corporate relationships enough to absorb some of the cost. The widening premium over savers shows they are already paying up for those relationships on the deposit side. Markets could also turn. If the Bank of Korea holds and U.S. 30-year yields fall back from their highest level since 2002 [8], banks will keep paying more than 4% for a year on money they would no longer need to price that high.
If Bank of Korea data show September lending rates flat or lower while corporate deposit rates stay above 4%, banks are taking the cost out of margin.
What to watch
- The Bank of Korea's next policy rate decision, since a hike would extend the deposit bidding among the big banks.
- Whether NH NongHyup Bank and Shinhan Bank push their posted one-year corporate rates past 4% to match Woori.
- The five-year AAA bank debenture yield after its 4.65% high, since a further rise would lift banks' other main funding cost.