Every Time They Launch, It Sells Like Hotcakes... The Golden Age of Fixed Deposits Amid Recession, Volatility, and Regulatory Pressure (Comprehensive)

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

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[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 KRW, sold out within just 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 expected the popularity to be high since the interest rate was up to 2.0%, but we did not anticipate it would 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." Shinhan Bank also sold out its '2019 Shinhan My Car Pro Baseball Time Deposit,' launched last March with a limit of 2 trillion KRW, within eight weeks and re-launched the product with a scale of 1 trillion KRW, which also sold out. KakaoBank, an internet-only bank, set a record last July when its special time deposit product sold out within one second of launch.

It is the heyday of time deposits. Structural recession, increased volatility, and various regulations related to finance and investment have caused market 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 KRW as of December last year, an increase of 47.7 trillion KRW (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 KRW in December 2016. This means an increase of 140.8 trillion KRW 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 as of the end of September last year was 753.04 trillion KRW, an increase of 72.1 trillion KRW (10.6%) compared to the same period the previous year. This marks five consecutive quarters of double-digit growth rates 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 by most observers. A representative from a commercial bank said, "Especially household funds seem uncertain about where to flow," adding, "Due to real estate loan regulations, it is not appropriate to combine existing funds with loans for investment, and with the entrenchment of recession and low growth, people hesitate to seek other investment options." A financial regulator analyzed, "Recent large-scale losses from 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 insured deposit balance at the end of the third quarter of 2019 was 2,184.2 trillion KRW, 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, financial investment company customer deposits, insurance company reserve funds, and securities finance company CMA, etc.) 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 KRW at the end of September 2018, 2,103.4 trillion KRW at the end of December 2018, 2,133.4 trillion KRW at the end of March 2019, and 2,156.2 trillion KRW 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's data, as of the end of October last year, the balance of private equity funds sold to individual investors decreased by about 9.9 billion KRW compared to the previous month. This is the largest monthly decline in about 12 years since December 2007 (when it decreased by 1.09 trillion KRW).

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 amid new loan-to-deposit ratio regulations and the increase in the minimum liquidity coverage ratio (LCR) standards.

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