[0.5% Interest Rate Era] More Deposits and Savings Accounts with 0% Rates... Concerns Over Accelerated Capital Outflow

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Haeyoung] As the Bank of Korea once again lowered the base interest rate to a record low of 0.5%, the possibility of a full-scale withdrawal of funds from the banking sector is expected.

According to the financial sector on the 28th, the total balance of time deposits at the five major banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?stood at 649.6198 trillion won as of the end of April, down by 2.7079 trillion won from the previous month.

It is interpreted that funds have withdrawn as the main interest rates on deposits and savings at commercial banks fell to the 0% range following the Bank of Korea's base rate cut, sharply reducing their investment appeal. Additionally, some of the funds appear to have moved to the stock market. The impact of reduced saving capacity due to the COVID-19 pandemic and increased cancellations of deposits and savings caused by household financial burdens also played a role.

After the Bank of Korea implemented a 'big cut' (0.5 percentage point reduction) in the base rate last March, it lowered the rate once again by 0.25% on this day, bringing the base rate down to a record low of 0.5%. If the banking sector reflects this latest rate cut, deposit interest rates are expected to decline further in succession.

In fact, according to the Bank of Korea, the interest rate on savings deposits in the banking sector based on new contracts last month was 1.2% per annum, down 0.07 percentage points from the previous month. The proportion of time deposit products with interest rates in the 0% range accounted for 17.6% of the total. Until the end of last year, the proportion of time deposits offering interest rates in the 0% range was only 2.5%, but it has been increasing every month this year. This trend in deposit interest rates is expected to become more pronounced going forward.

The variable is the lack of suitable investment destinations. Although the stock market has recently risen, concerns remain over a market decline due to poor corporate earnings and economic downturn, and there is nowhere for money to go due to real estate regulations. In fact, it is reported that high-net-worth individuals at major banks are increasing their proportion of time deposits.

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