'투자미아' Companies, 300 Trillion Won in Bank Large Deposits Only

Over 80 Trillion Won Increase in Fixed Deposits Over 1 Billion Won in 2 Years... Domestic and Foreign Economic Uncertainty Leads to Cash Reserves
Funding Difficulties for SMEs Double in a Year... Market Money Not Circulating Despite BOK Rate Cuts

[Asia Economy Reporters Haeyoung Kwon, Minyoung Kim] The amount of money that companies deposit in banks is increasing significantly. Instead of executing new investments for medium- to long-term financing, companies are piling up money in banks without finding places to use it. On the other hand, a polarization in financing conditions is becoming more pronounced, with borrowing conditions worsening mainly for large corporations and small and medium-sized enterprises (SMEs) with lower credit ratings.

According to the Bank of Korea and financial authorities on the 13th, the balance of time deposits of 1 billion KRW or more at four major commercial banks?Shinhan, KB Kookmin, KEB Hana, and Woori Bank?reached 293.5032 trillion KRW at the end of last year. This is an increase of 80 trillion KRW over two years compared to 214.2136 trillion KRW at the end of 2017. The number of time deposit accounts with 1 billion KRW or more also increased from 30,561 at the end of 2017 to 32,054 at the end of 2018, and then to 34,426 at the end of last year.

A financial sector official said, "Large depositors who put 1 billion KRW or more into time deposits are mostly corporations rather than individuals (including sole proprietors). When the economy is good, companies proactively increase investments to prepare for the future, but currently, due to unstable domestic and international economic conditions, they are retaining surplus funds internally." In other words, the money that cannot find investment destinations due to the current economic downturn is accumulating in banks.

Individuals are also unable to find investment opportunities. A representative from a commercial bank stated, "Individual funds are also becoming more conservative overall in their management, as they cannot flow into the stock market due to the economic recession and the outlook for reduced corporate profits, compounded by real estate regulations."

While large deposits of 1 billion KRW or more are accumulating in banks, the number of SMEs experiencing financial difficulties is increasing. According to the '2019 SME Financial Condition Survey Report' released by the IBK Industrial Bank of Korea Economic Research Institute, the proportion of SMEs that responded that overall borrowing conditions worsened among those who received new loans from banks nearly doubled from 17.6% in 2017 to 31.9% in 2018. The main reasons cited were an increase in interest rates, rising from 35.2% to 42.8%, and worsening credit loan borrowing conditions, increasing from 19.3% to 32.8%.

Ultimately, even if the Bank of Korea lowers interest rates, the money is not circulating in the market, deepening the financial stagnation. According to the Bank of Korea, the money multiplier, which indicates how much money distributed by the government circulates in the private sector, recorded the lowest level ever at 15.7 times as of the end of September last year. When the money multiplier declines, even if the government injects money, it does not circulate within financial institutions, reducing the effect of amplifying the money supply. The velocity of money, which shows how many times one unit of currency is used for the production of goods and services by economic agents, also fell to an all-time low of 0.68 in the first quarter of last year and remained low at 0.69 in the second quarter.

Amid economic slowdown, with the minimum wage increase and the introduction of the 52-hour workweek, the business environment for SMEs has deteriorated. The proportion of SMEs with an interest coverage ratio below 1, meaning they cannot even pay interest from operating profits, reached 49.7% in the first half of last year, increasing by more than 10 percentage points compared to 38.2% in 2014 over five years.

A senior official from the financial authorities said, "This year’s banking supervision direction is to open the way for market funds to flow into productive and innovative sectors, namely companies. Although many companies are complaining about financial difficulties, it is challenging to induce funding to productive areas with low risk of insolvency under the uncertain economic outlook, which is a major concern."

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