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Loan-to-Deposit Interest Ratio Widens Again; “Banks Only Care about Creating Profits”

Loan-to-Deposit Interest Ratio Widens Again; “Banks Only Care about Creating Profits”

Posted February. 27, 2005 22:44,   


The lending rate of banks rose last month, but the deposit rate fell, which led to an increase in the interest spread of loans and deposits.

It means that banks now pay a low deposit rate while receiving high lending rates from businesses and households.

The Bank of Korea (BOK) announced on Sunday that the average interest rate of savings deposits that were opened last month stood at 3.4 percent per year, which is 0.01 percentage points lower than last December.

The current deposit rate is the lowest since 1996, when the BOK started keeping track of the average interest rate of financial institutions.

On the contrary, the lending interest rate in January increased 0.06 percentage points from the previous month to 5.58 percent. As a result, the loan-to-deposit ratio stands at 2.18 percent, up from 2.11 percentage points last month.

The deposit rate fell despite the increase in the open market interest rate last month because banks are negative toward interest rate increases, and in January, they sold almost no special products that give higher rates than general savings accounts.

The interest rate of fixed deposits, which account for most savings accounts, declined 0.05 percentage points from the month before to 3.38 percent.

If one opens a fixed deposit account with 100 million won for a year, he will ultimately earn 2.86 million won from 33.8 million won in interest after paying a 15.4 percent tax, or 520,000 won. Given the consumer price increase (3.6 percent last year), however, he faces the loss of 740,000 won annally.

The average interest rate of corporate loans in January was 5.64 percent, up 0.10 percentage points, while the average rate of household loans went up 0.03 percentage points to 5.51 percent.

Kyung-Joon Chung news91@donga.com