Korean banks are luring new customers by offering them great deals.
The prevailing cutthroat competition is seeing banks offering abnormally high interest rates on savings accounts of up to 5%, which analysts say can damage a bank’s profitability in the long term.
Analysts noted that this severe competition in the banking industry now involves Korea’s big four financial groups: Korea Development Bank, KB Kookmin Bank, Woori Bank and Shinhan Bank.
Korea Development Bank, a state-owned bank, has taken in US$845 million (one trillion won) from its online KDBdirect product that offers an interest rate of 4.5%.
The offering was so popular it added 28,000 customers and US$661 million to KDB. At the current pace, KDB expects to earn US$1.7 billion by year-end.
Standard Chartered Bank in Korea has received over 2 million customers with its “Knock2U” campaign that promises up to 5% in annual interest. Critics, however, said the interest rate is misleading since the rates vary from month to month.
KB Kookmin Bank launched a new product, KB’s First Savings, offering up to 5% in annual interest but limited to those between 18 and 38 year old.
Woori Bank’s product offers 4.5% interest but only after they buy a pair of shoes from shoe firm, SODA. Shinhan Bank’s Monthly Double Savings offers 4.8% interest but the high rate is available only when a customer takes out a mortgage with the bank.
Critics of the rising rates say customers not familiar with banking terms and the detailed structure of financial products can be misled by the highly complex offers.
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