[금사빠의 핀스토리] Deposit insurance limit raised to 100 million won visible… Will loan interest rates rise?

[사진=예금보험공사]

The depositor protection limit is expected to be raised from the current 50 million won to 100 million won. Accordingly, the deposit insurance premium rate (forecast premium rate) that financial companies must pay is also expected to rise. Concerns are growing over whether financial companies will pass this on to consumers.

According to the financial world on the 21st, the political world agreed on the 13th to pass a revision to the Depositor Protection Act to increase the depositor protection limit at the regular National Assembly. The protection limit per depositor is expected to be raised from 50 million won to 100 million won per depositor as early as the first half of next year.

The depositor protection system is a system in which the Deposit Insurance Corporation (Yebo) protects a set amount of principal per depositor and returns it to the depositor in the event that a financial institution goes bankrupt. The current protection limit is up to 50 million won. The advantage of raising the protection limit is that more customers can safely protect their deposits.

Funding for depositor protection comes from deposit insurance premiums received from financial companies. If the protection limit is raised, the forecast fee will inevitably increase. According to the results of a research project previously submitted by Forecast to improve depositor protection, when the limit is raised to 100 million won, the forecast rate must be raised by about 27%.

Accordingly, there are concerns that financial companies will pass the increased forecast fees on to consumers. Regarding this, first-tier financial institutions explained that even if the forecast rate rises, there will be no change in consumers’ deposit or loan interest rates.

Previously, the Korea Federation of Banks revised its best practices to ensure that banks do not reflect deposit insurance premiums when calculating additional interest rates for loans. Bank loan interest rates are calculated by subtracting the preferential interest rate from the base interest rate plus an additional interest rate calculated by considering various cost factors.

An official from the banking sector explained, “Because the forecast fee is set to be paid separately as a legal cost, banks are currently not reflecting it in deposit or loan interest rates,” adding, “This is the same even if the forecast fee rate increases.”

In the case of savings banks, the forecast fee rate is overwhelmingly higher than that of other industries, so the burden of forecast fee increases is severe. Compared to commercial banks’ forecast rate of 0.08%, savings banks’ forecast rate is 0.4%, which is five times higher. Last year, the total forecast fees paid by 79 savings banks for forecasts amounted to 555 billion won, an increase of about 17.4% compared to the previous year. As the savings bank industry continues to worsen, increasing forecast fees becomes a burden.

According to the Korea Federation of Savings Banks, savings banks do not have separate deposit and loan regulations related to forecast interest rates. When the deposit fee increases, savings banks can decide the interest rate based on their individual judgment.

According to an industry official, “Deposits and loans, procurement and sales cannot be viewed separately,” and “If procurement costs increase, the sales price is likely to increase as well.” The explanation is that if the forecast fee increases, the consumer loan interest rate may also increase.

In addition, it is expected that if the depositor protection limit is increased, funds will move to savings banks with high interest rates. The savings bank industry is not happy about this either.

This is because the real estate project financing (PF) market, which was a major pillar of savings bank operations, is deteriorating, loan delinquency rates are rising, and there are limited places to lend loans. In the case of real estate PF, new business itself is impossible for the time being. An official from a large savings bank said, “Due to the deterioration of the savings bank industry, we are reducing the size of deposits and loans. Since increasing the depositor protection limit is not very effective at the moment, savings banks will adjust the size of deposits through interest rate cuts, etc.” He said.

Meanwhile, the depositor protection limit has not changed since it was set at 50 million won in 2001, taking into account the size of gross domestic product (GDP) per capita. In March of last year, a bank run (large-scale withdrawal) occurred at Silicon Valley Bank (SVB) in the United States, sparking discussion about raising the protection limit.

Since up to 100 million won is guaranteed even in the event of a financial company crisis, there are expectations that this will reduce the number of cases of people rushing to withdraw deposits and contribute to stabilizing the financial market. Considering our country’s economic level, including GDP, it has been consistently pointed out that the protection limit is significantly lower than that of major overseas countries. Currently, the protection limit is set at $250,000 (about 350 million won) in the United States, 85,000 pounds (about 152 million won) in the United Kingdom, and 10 million yen (about 90 million won) in Japan.

Reporter information Shin Dong-geun [email protected]

What are ⁣the potential economic impacts of⁣ raising the‌ deposit insurance⁣ limit⁣ from 50 million won ⁣to 100 million won in South Korea?

Guest 1: Park Jin-woo, Head of Policy Planning⁢ at the Deposit Insurance Corporation‍ of Korea (DIC)

Guest ‍2:​ Kim Seung-hwan, Chief Economist at Hana Financial Investment

Interviewer: Hello, can you please introduce yourselves and​ provide a brief overview of the‍ current depositor protection‌ program in⁢ Korea?

Guest 1: Sure, I’m Park Jin-woo, the ⁤Head of Policy‌ Planning at the Deposit Insurance⁤ Corporation of ⁤Korea (DIC). The⁤ DIC was established to ensure‍ the stability of the financial market by insuring ‍bank deposits and providing compensation to depositors in cases of ⁤bankruptcy. The current deposit⁤ insurance⁣ program in Korea covers up to 50 million won per depositor, which was last revised in 2001. This limit is based on the per capita gross domestic product (GDP) at that time and has remained ‍unchanged‌ since then.

Guest‌ 2: ⁣And I’m⁣ Kim‍ Seung-hwan, the Chief ‍Economist⁣ at ⁢Hana Financial Investment. Depositor protection programs are essential to‌ maintain the public’s⁣ trust in the financial system and prevent ⁢bank runs. South Korea’s program ‍is relatively low⁤ compared to other major economies, with a coverage limit ⁢of ⁤just 50 million won. However, raising​ the limit to 100 million won will help improve confidence in the banking sector, especially among smaller depositors who may not ‍have substantial​ savings ⁤above the current limit.

Interviewer: ⁣The National Assembly ​has⁤ recently agreed to‌ increase the deposit protection limit from 50 million won to 100 million won. What are the main reasons⁢ behind this decision, and how does it benefit depositors?

Guest 1: The government believes that ⁣raising the protection limit will​ provide greater security to depositors and help prevent bank runs ⁣during times of financial instability. This move comes in response to the global⁤ economic environment,⁢ including the ⁣Silicon Valley Bank collapse​ in the United States, and‍ aims to strengthen consumer confidence in the domestic banking system. The increased limit will ensure ‌that ‌more depositors are ‌covered ​in the event of a bank failure, reducing the need for ‌them⁢ to withdraw their funds abruptly.

Guest 2: The 100 million won limit