Banks' Surplus Funds Shift to Bonds Amid Real Estate Loan Regulations

Increasing Bank Bond Holdings Despite the Second Anshim Conversion Loan Issue

Government to Prepare Additional Real Estate Measures... Inevitable Decrease in Bank Loans

Banks Account for 22% of the Bond Market... Establishing Themselves as Key Players

[Asia Economy Reporter Kangwook Cho] An analysis has emerged that due to the government's strong real estate loan regulations, banks' surplus funds are concentrating on bond investments. It is pointed out that as banks expand their net investment in domestic bonds, they have established themselves as major players in the overall domestic bond market.

According to the financial investment industry on the 12th, last year banks made a net investment of 46.4 trillion KRW in domestic bonds, recording a balance of 339.3 trillion KRW. Although banks did not seem to be actively investing in domestic bonds due to the Anshim Conversion Loan MBS issuance issue, it is analyzed that banks' bond holdings have been continuously increasing.

Ji-young Kim, a researcher at Shinhan Financial Investment, explained, "Due to strengthened loan-to-deposit ratio regulations and the implementation of loan restrictions, banks have consistently maintained a net investment trend in domestic bonds over the past five years," adding, "Banks have established themselves as major players accounting for 22.0% of the entire domestic bond market."

Recently, the government announced stronger-than-expected real estate measures to curb housing price increases in speculative areas. Experts see a decrease in bank loans as inevitable, given the government's strong determination to stabilize the housing market. The domestic real estate market influences banks' loan demand. Over 40% of total loans by deposit banks are household loans, and among household loans, mortgage loans account for 70%. Including real estate-related corporate loan demand, this is considered a high level.

Researcher Kim predicted, "Since the December 16 housing market measures apply stringent LTV restrictions mainly in the Seoul area, where loan demand is high, bank loans will inevitably decrease," adding, "Changes in asset management due to the expansion of banks' surplus funds are expected."

In fact, right after the comprehensive real estate measures announced on August 2, 2017, and September 13, 2018, the net investment scale of banks in bonds surged more than twice the average monthly level. This is analyzed as an expansion of bond investments as an alternative management method due to difficulties in loan operations.

Researcher Kim explained, "Although there is skepticism about bond investments that may limit profitability due to the prolonged low-interest-rate environment, the need for risk management through increasing the proportion of safe assets continues to be raised amid ongoing domestic and international uncertainties," adding, "Investment in short-term bonds, classified as highly liquid assets for liquidity securing purposes, remains attractive."

He continued, "It is necessary to closely observe the supply and demand influence about a month after the announcement of the 'December 16 Housing Market Stabilization Plan,'" and forecasted, "However, the expanded bond purchasing capacity of banks due to deteriorating loan conditions is a favorable factor for the bond market supply and demand environment."

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