Korean banks’ deposit rate dips to 13-year low in March

April 27, 2009 11:22 pm 

SEOUL, April 26 — South Korean banks' deposit rate fell to the lowest level in more than 13 years in March due to steep cuts in the key interest rate, the central bank said Sunday.

The average deposit rate for households and companies reached 2.97 percent last month, down 0.26 percentage point from a month earlier, according to the Bank of Korea (BOK). It marked the lowest level since January 1996, when the central bank began to compile related data.

But the average lending rate declined by a smaller margin than the deposit rate. The lending rate fell by 0.07 percentage point to 5.5 percent in March, hitting the lowest mark since August 2005, the BOK added.

In April, the BOK froze the benchmark rate at a record low of two percent for the second straight month, saying the sharp fall in economic activity has been moderated. It had made six consecutive rate cuts totaling 3.25 percentage points into February.

"Record-low key rate cuts pulled down market rates like returns on certificates of deposit. Local banks' deposit and lending rates have fallen in tandem," Kim Byoung-soo, an official at the BOK, said.

Meanwhile, South Korean banks' loan-deposit spread dropped to the lowest level last month in more than four years.

The difference between local banks' lending and deposit rates reached 1.73 percentage points as of the end of March, compared with 2.19 percentage points the previous month, the BOK added.

The March figure marked the narrowest gap since October 2004, when the central bank began to compile related data.

"The narrowed gap in the two rates means that local banks are facing squeezed interest income," Kim added.

South Korean banks' earnings season kicked off Friday. Analysts say most lenders will probably post a small profit in the first quarter due to lower-than-expected provisions, but their near-term outlook remains murky due to falling margins and rising bad loans. (PNA/Yonhap)

LDV/rsm

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