South Korean banks see higher interest on one-year deposits than two-year terms

A rare phenomenon has emerged in South Korea's banking sector where one-year fixed deposit rates are higher than two-year rates. Typically, longer-term deposits offer higher interest to compensate for the duration of the commitment, but this trend has been reversed.

Major commercial banks in the country have seen one-year deposit rates rise to the mid-3% range, while two-year rates remain lower, between 2.7% and 3%.

Several factors contribute to this inversion. Regulations on the total volume of household loans have made it difficult for banks to expand their loan assets, reducing the necessity to secure long-term funds through high-interest rates. Additionally, an increase in corporate loan delinquencies compared to last year has made banks hesitant to pay high interest for long-term capital. With base interest rates expected to rise, there is a growing trend of funds moving from the stock market into short-term deposits, a phenomenon described as a ‘reverse money move’.