As the interest rates on bank deposits and savings have dropped to the annual rate of 1%, mutual financial institutions such as NongHyup, credit cooperatives, and Saemaul Geumgo are ramping up their operations with high interest rates in the 4% range. With the deposit insurance limit increasing to 100 million won starting September 1, the 'money move' to mutual finance is expected to gain momentum.
According to the financial sector on the 10th, the basic interest rate for the Cheonan Credit Cooperative's 'e-PaRan Savings' is 4.30% per annum. This product allows monthly contributions of up to 1 million won and has a subscription period of between 1 and 5 years. If all favorable conditions, such as automatic transfer payment records and credit card spending records, are met, the maximum interest rate is 4.63% per annum. Saving 1 million won monthly for 5 years at an interest rate of 4.63% will yield a total principal of 60 million won and approximately 7.06 million won in pre-tax interest. This product is exclusively available online and can be subscribed to through the Credit Cooperative's OnBank and Rion branches.
The basic interest rate for the Icheon Saemaul Geumgo's 'MG The Banking Time Deposits' is 4.00%, with a maximum rate of 4.5%. It is a product that allows savings of up to 1 million won for a maximum of 1 year. The basic interest rate for Bupyeong NongHyup's 'Pocket (money) Time Deposits' is 3.5% per annum, and if certain conditions, such as new transaction with NongHyup and registration of external bank accounts for open banking, are met, the maximum annual interest rate can be 4.1%. The maximum monthly contribution is 500,000 won, with a subscription period of 1 year.
Bank deposit and savings products fall significantly short of the basic interest rate of 4%. According to the Korea Federation of Banks, as of the previous day, the basic interest rates for 1-year maturity time deposit products at the five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup—ranged from 2.30% to 3.15% per annum. In the same conditions, basic savings deposit interest rates were between 2.15% and 2.58% per annum. The basic deposit interest rates for BNK Busan Bank and Jeju Bank fell to 1.9%.
Mutual finance is ramping up customer acquisition by launching high-interest special products. Those interested in investment and savings are quickly sharing information about high-interest special products of various local cooperatives across the nation on various online communities. There have even been cases of sold-out products. Recently, a 3.6% interest rate special deposit product released by the Jamsil Saemaul Geumgo sold out online in less than an hour.
The mutual finance sector is rapidly accumulating funds. According to the Bank of Korea's economic statistics system, as of the end of March, the total deposit balance in the mutual finance sector, including Saemaul Geumgo, credit cooperatives, NongHyup, fisheries cooperatives, and forestry cooperatives, stood at 917.804 trillion won. This represents an increase of over 10 trillion won compared to the end of January (906.609 trillion won).
However, there are concerns that if competition for high-interest rates overheats, the profitability and asset soundness of mutual finance could deteriorate. In a situation where real estate project financing (PF) loans are facing defaults leading to a 'deficit and arrears shock,' the burden could be substantial if negative margins arise from high-interest marketing. A related official from a commercial bank noted, 'Generally, the interest rates for deposits and savings at mutual finance are indeed higher than those at banks, but currently, the interest rate gap has widened significantly, exceeding 1 percentage point.'
Financial authorities plan to closely monitor the mutual finance sector to prevent excessive competition for deposits ahead of the increase in the deposit insurance limit in September. They also decided to strengthen risk management by focusing on assessing liquidity and soundness in vulnerable cooperatives.