Sold out as soon as released... 'Interest Rate Nomad Zok' flocking to fixed deposits

Year-End Balance of 5 Major Commercial Banks at 646 Trillion
Increase of 47.7 Trillion Compared to End of 2018

Photo by Getty Images Bank

[Asia Economy Reporter Kim Hyo-jin] Woori Bank's 'Thank You, Our Customers Time Deposit,' launched on the 2nd with a limit of 1 trillion won, was sold out within five days. The interest rates for this deposit were up to 1.9% per annum for one year and up to 2.0% per annum for two years. A Woori Bank official said, "We knew the interest rate of up to 2.0% would be popular, but we did not expect it to sell out this quickly," adding, "Even though market interest rates are low, customers who are uneasy about investment destinations seem to be flocking to time deposits."

It is the heyday of time deposits. Structural recession, increased volatility, and various regulations related to finance and investment have caused circulating funds to accumulate in deposit accounts. According to the financial sector on the 10th, the balance of time deposits at the five major commercial banks?Shinhan, KB Kookmin, KEB Hana, Woori, and NH Nonghyup?stood at approximately 646.1 trillion won as of December last year, an increase of 47.7 trillion won (7.9%) compared to December the previous year. Excluding NH Nonghyup Bank, which was the only bank to see a decrease in time deposit balances during this period, the growth rate rises to double digits (10.4%).

The time deposit balance of the five major banks was only 505.3 trillion won in December 2016. This means an increase of 140.8 trillion won over three years. The overall trend is similar across all deposit banks. According to the Bank of Korea, the balance of time deposits at deposit banks was 753.04 trillion won as of the end of September last year, an increase of 72.1 trillion won (10.6%) compared to the same period the previous year. This marked five consecutive quarters of double-digit growth since the third quarter of 2018.

The fact that time deposits are increasing like this while the base interest rate remains at a historic low of 1.25% is considered unusual. A source from a commercial bank said, "There is a general atmosphere of uncertainty about where household funds will flow," adding, "Due to real estate loan regulations, it is not appropriate to combine existing funds with loans for investment, and with recession and low growth becoming entrenched, people hesitate to seek other investment options." A financial regulator analyzed, "Recent large-scale losses in various financial products have also suppressed active investment activities by financial consumers."

This indicates a stronger tendency to prioritize the accumulation of safe assets over asset growth. The 'Deposit Insurance Trends as of the End of September 2019' announced by the Korea Deposit Insurance Corporation the day before supports this explanation. The balance of insured deposits at the end of the third quarter of 2019 was 2,184.2 trillion won, an increase of 1.3% compared to the previous quarter.

Insured deposits refer to deposits protected by the Deposit Insurance Corporation (including bank and savings bank deposits, customer deposits at financial investment firms, insurance company reserves, and CMA accounts at securities companies), excluding deposits where the depositor is the government, public institutions, or insured financial companies. Insured deposits have shown a continuous upward trend: 2,075.5 trillion won at the end of September 2018, 2,103.4 trillion won at the end of December 2018, 2,133.4 trillion won at the end of March 2019, and 2,156.2 trillion won at the end of June 2019.

On the other hand, the balance of private equity funds, which are relatively aggressive investment vehicles, has been steadily decreasing. According to the Korea Financial Investment Association, as of the end of October last year, the balance of private equity funds sold to individual investors decreased by about 990 billion won compared to the end of the previous month. This is the largest monthly decline in about 12 years since December 2007 (a decrease of 1.09 trillion won).

A financial sector official said, "The overall sentiment toward finance and investment is significantly subdued," and predicted, "The government's tightening stance on real estate loans is becoming more solidified, so this trend is expected to continue throughout this year." There are also forecasts that the trend of funds flowing into time deposits may accelerate further due to banks actively attracting deposits under new loan-to-deposit ratio regulations and the simultaneous increase in the minimum liquidity coverage ratio (LCR) requirements.

This content was produced with the assistance of AI translation services.