Analysis of Current Deposit Trends and Their Relationship with Interest Rate Increases
In a recently published FSA Analytical Note (in Japanese), the authors conducted a fact-finding survey on deposit balances and deposit interest rates at various financial institutions in response to recent interest rate increases.
While deposit balances have increased overall, differences in the distribution of deposit balance growth rates by business type and deposit category were observed. In examining the relationship between deposit interest rates and deposit balance growth rates, a correlation between deposit yields (which include the effects of campaigns and other factors) and changes in deposit balances was found. Going forward, the FSA will continue timely data-driven monitoring of deposit trends while capturing changes in the macro environment, including interest rate conditions and demographic dynamics.
Introduction
The analysis is prompted by the shift in the Japanese monetary policy landscape, including the Bank of Japan's review of negative interest rate policies and subsequent increases in policy interest rates. This has led to a rise in yen deposit interest rates. The FSA recognizes that understanding how financial institutions are responding to these interest rate changes and what deposit strategies they are employing is crucial for its ongoing dialogue with these institutions regarding profitability and asset liability management (ALM).
While deposit balances have generally increased, the analysis emphasizes that the situation is not uniform across all financial institutions and deposit types. For instance, net banks have demonstrated significantly higher growth rates compared to traditional banks. Similarly, demand deposits and time deposits exhibit contrasting trends. This heterogeneity necessitates a granular analysis that considers factors such as institution type and deposit category.
The Analytical Note states that the purpose of the analysis is to identify the realities surrounding recent deposit trends and to examine the relationship between deposit interest rates and deposit balance growth rates. The primary datasets used for the analysis include deposit data categorized by depositor (corporations and individuals), deposit type, and branch, as well as data on deposit interest rates and financial institutions' financial statements.
Deposit Balance Growth Rate
This section focuses on the growth rates of deposit balances across various institution types. The analysis reveals that while the overall growth rate of deposit balances is positive, some institution types have experienced declines in deposit balances.
When considering different categories of depositors, the analysis demonstrates that corporate deposits, both demand and time deposits, show no significant bias in their distribution. Both institutions experiencing growth and those experiencing decline are present, and the magnitude of changes varies considerably. On the other hand, individual deposits show growth in both demand and time deposit categories, with time deposits demonstrating a significant increase. In individual deposit, the time deposit sees a drop in a number of financial institutions, and in demand deposit, there is an increase.
The analysis also examines trends across different institution types. Major banks show a trend of largely increasing corporate deposits, but decreasing in personal deposits. Regional banks indicate growing deposits in individual demand deposits, but decreasing deposits in individual time deposits. Net banks have a trend of increasing deposits in both corporate and individual deposits.
The FSA notes that net banks, while demonstrating high growth rates, started from a smaller base of deposits. Also, deposit size and nature of work between various types of financial institutions such as regional banks, credit banks and credit unions, the proportions of personal time deposits against total deposits were higher than other types of financial institutions.
Interest Rate Trend Analysis
This part of the FSA analysis investigates the movements in over-the-counter interest rates. The Bank of Japan decided to revise its negative interest rate policy, and subsequently raised it interest rates twice. One month after the interest rate hike decision, the interest rates of major banks, regional banks, local banks, credit unions were seen to follow. The net banks maintain a high level of interest rates for both general deposits and time deposits. However, as of May 12, 2025, the interest rates are about the same level as major banks and regional banks (0.2%). It is important to remember that the over the counter rates are being calculated on the data, and does not reflect any ongoing promotions or net banking specific interest rates.
The relationship between deposit rates and the rates of increase
The analysis then seeks to find a relationship between interest rates and balance increase by analyzing the rate of increase of banks and the deposit rates offered to the banks. It examines whether increases in deposit rates have an impact on deposit balances.
Using a visual representation, the document shows whether the trends show any changes between the financial institutions that raised interest rates and those that did not. It shows a graph of the normal deposit balance increase to rates and the rate of increase of time deposit against deposit rates. Also shown are comparisons between balance increases versus deposit rates by deposit types for major banks, regional banks, and net banks.
It is shown, across the board, there is no obvious relationship between the increase in deposits and the banks that raised interest rates.
Verification for the Relationships of Deposit Rates and Balance Increases
In this section, the FSA aims to verify the findings using multi-regression analysis. The analysis uses two variables, the range of increase in the over the counter rates, and the differences in deposit rates, versus the trends in the increases in deposits.
The analysis is being done to ascertain the assumption that, as the rates increases, there is a correlation with deposit increases.
This is done using institutions such as major banks, regional banks, credit unions, and net banks, for a total of 238 financial institutions.
As it can take time for interest rates to impact deposit trends, so the deposit rate ranges are from 2023/9 to 2024/9, while the balance rate increases are from 2024/3 to 2025/3. There are also factors in the area that would have to be controlled for.
The factors are the financial types, household income levels, increases in population.
According to the analysis, the data is not significant, with both normal deposits, and time deposit accounts.
This can be attributed to the limited range of interest rate increases. Also, while a 6 month gap was created between the factors, the factors can take time to fully propagate throughout the economy.
Next, is a check whether a trend can be seen depending on the size of rate changes or balance increase rate. Again, the major bank, regional banks, and net banks are targeted, for a total of 119 financial institutions. The controls, like the last round, have to be in the same period.
Key Findings and Considerations
The analysis reveals that, in general, increases in interest rates are correlated with increases in deposit rates, and can influence the increase of balance increases of time deposit accounts. It seems, when looked at independently, increases in rates and increases in deposit accounts is a trend.
Additionally, looking at the banks types, it seems second tier financial institutions, as well as banks with the higher numbers of deposits, saw an increase in the levels of deposits.
Conclusion
This analysis, utilizing financial institution deposit data, financial statement data, and Nikkei interest rate information, examined the trends in deposit balances and interest rates in the context of a rising interest rate environment. The analysis found that while deposit balances are generally increasing, the distribution of deposit balance growth rates varies depending on the institution type and deposit category. Also, the region demographics, along with increased deposit trends can be seen. In particular, the analysis confirmed that deposit interest rates, influenced by campaigns and other factors, are positively correlated with deposit balance increases. There are some types of net financial institutions that have seen large increases due to increased deposit balances.
These results indicate a specific relationship between the trend of banks and the deposit rates. The deposit market is a key thing, but for the time being, many institutions have the same rates, so the deposit market as a whole will not move in large ways. The financial institutions, in the future, will have to come up with the optimal solutions for the best rates.
Furthermore, even though the market can depend on deposit rates and over the counter balances, there has to be, alongside that, service changes and rates changes, so that the customers can be provided individual service. These should be considered while analyzing.
The current study is focused on a 1 year period around 2023/9 and 2024/9. It is ideal, on the other hand, to see that the market can be increased and be tested with longer periods of data.
The financial agencies, by doing constant analysis, are able to get a better grasp of the trends and management of the financial institutions.
