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Commercial banks slash savings, checking account yields to near 0%

(Yonhap)
(Yonhap)

Korean commercial banks had cut their yields on savings and checking accounts to near zero as of Sunday, in line with the central bank’s move to slash its policy rate to a record low of 0.5 percent last month to combat economic risks from the coronavirus pandemic.

Major commercial banks Shinhan, KB Kookmin and NH Nonghyup have lowered their yields on one-year savings and checking accounts -- which are most popular among customers here -- to a range of 0.3 percent to 0.75 percent, in recent days.

Yields on most three-year savings and checking accounts offered by the lenders were brought below 1 percent as well.

Foreign banks operating in Korea, including Citibank Korea and Standard Chartered Bank Korea, followed suit by lowering the yields of their accounts by 0.1 to 0.3 percentage points.

Other banks have announced plans to lower yields as well, including Woori’s “Won savings account,” which was its only one-year savings account with a 2 percent annual interest rate. It will be adjusted to 1.9 percent, effective Wednesday, the bank said.

Local savings banks, which have worked as a breather for local financial consumers seeking relatively low-risk products, have been also adjusting their interest rates as well based on the new policy rate. The average annual yield on checking accounts fell to a record low of 1.88 percent as of Friday, compared to 1.97 percent in January, data from Korea Federation of Savings Banks showed. The KFSB represents around 80 savings banks here.

Experts have expressed concerns that sliding yields on low-risk accounts and similar products offered by first-tier and savings banks would push investors to high-risk products such as stocks and derivatives.

“To deal with both short- and long-term drops in interest rates and a decline in profitability tied to the matter, excessive amount of funds could flow into high-risk assets,” a recent report by the Korea Institute of Finance said.

Signs of accelerated capital flows into the local securities market have been growing this year as the stock investment deposit -- investors’ cash entrusted to brokerages, mostly for future stock investments -- grew by 63.1 percent from end-2019 to 44.5 trillion won ($36.9 billion), last month.

By Jung Min-kyung (mkjung@heraldcorp.com)
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