Korean Banks Raise Deposit Rates Amid ‘Reverse Money Move’ and Tightening Loans

Commercial Banks Push Deposit Rates Mid-3 Percent Range

NH Nonghyup Bank raised its deposit rates by up to 0.25 percentage points, while Hana Bank increased the rate on its flagship regular deposit product to 3.4% annually, marking its second hike in just 12 days, according to Maeil Business TV. Other major institutions have followed suit, with KB Kookmin Bank and Woori Bank lifting deposit rates to 3.5% annually. KakaoBank raised its one-year time deposit rate to 3.7% annually, pushing yields across primary commercial banks firmly into the mid-3% range.

The upward adjustments reflect rising market interest rates bleeding into deposit products. "Since the Bank of Korea and the U.S.”

Capital Flees Stock Markets for Bank Deposits

This aggressive yield competition is accelerating a shift in capital flows known as the “reverse money move.” Data compiled by Maeil Business TV shows that total regular deposit balances across the five major commercial banks reached 1,010,372,200,000,000 won as of August 17, expanding by more than 5 trillion won in just half a month after crossing the 1-trillion-won threshold at the end of the previous month. Regular deposit balances have grown for five consecutive months since May, surging by nearly 56 trillion won over a two-month span compared to the end of June.

Stock market sideline funds are contracting in direct contrast to this deposit growth. According to the Korea Financial Investment Association, investor deposit reserves dropped from 121,634,000,000,000 won at the end of June to 97,491,100,000,000 won by August 17, a decline exceeding 24 trillion won. Daily average stock trading values also shrank from over 50 trillion won in June to roughly 21 trillion won as the Kospi index remained trapped in a stagnant trading range. Investors are parking money in bank accounts offering 3% mid-range yields rather than taking risks in volatile equities.

Delinquency Rates Rise While Lending Doors Tighten

Borrowers face a starkly different environment as high interest rates drive up bank delinquency rates. According to the Financial Supervisory Service, the loan delinquency rate for domestic banks stood at 0.63% at the end of July, marking a 0.07 percentage point increase from the previous month and hitting the highest level for July since 2016. New delinquent debt added during July reached 3.2 trillion won, up 600 billion won from June. While the increase spans both corporate and household loans, financial regulators note that a significant drop in write-offs and debt collection, alongside new insolvencies tied to corporate restructurings, contributed to the rise.

At the same time, commercial banks are tightening credit under strict regulatory caps. Although financial authorities expanded annual household lending growth targets last month, granting about 2.78 trillion won in additional lending capacity, that buffer was exhausted in less than a month. As of August 17, household loan balances—excluding policy loans—at the five major commercial banks stood at 652,261,700,000,000 won, an increase of 7,291,800,000,000 won from the end of the previous year. This already exceeds the annual growth target of roughly 7,110,000,000,000 won negotiated with financial authorities.

As a result, banks face an asymmetrical operational landscape: they are aggressively boosting deposit rates to capture capital while strictly restricting lending to manage regulatory loan ceilings, leaving borrowers facing persistent hurdles through the end of the year.

Credit Card Loans Decline as Borrowers Pivot

Consumer credit markets are experiencing a similar contraction in unsecured lending. According to the Credit Finance Association, loan balances across nine major credit card companies fell to 42,685,200,000,000 won at the end of August, declining by 110.5 billion won from the previous month. This marks the third month of decreases following a peak in May, driven by credit card issuers curbing new loan supplies to comply with household debt management guidelines.

However, alternative short-term liquidity tools are expanding. Balances for revolving payment services increased by 123.5 billion won over the month to approach 7 trillion won by the end of August, while debt-consolidation loans designed to pay off existing card balances rose by 47.3 billion won to reach 1,695,300,000,000 won. While headline card loan figures suggest a drop in household debt burdens, consumers are increasingly migrating toward alternative financing channels to manage liquidity.