Overflowing Money in Banks... Companies Cry Out "No Money Even If We Borrow" (Comprehensive)

Banks Face Surge in Demand Deposit Accounts and Time Deposits
Turnover Rate of Demand Deposits Plummets
Funds Unable to Find Investment Channels Flock to Safe Assets
Companies Struggle with Cash Shortages
Low Interest Rates and COVID-19 Deepen 'Financial Stagnation'

[Asia Economy reporters Kim Hyo-jin and Kim Cheol-hyun] Although liquidity is overflowing in the market, companies are complaining of financial difficulties. While idle funds that have not found investment destinations are piling up in banks, the money is not flowing to where it is actually needed. The phenomenon of 'financial arteriosclerosis,' where money does not circulate properly due to prolonged ultra-low interest rates and investment sentiment freezing caused by the novel coronavirus infection (COVID-19), appears to be intensifying.

As concerns arise over the possibility of a second wave of COVID-19, there are worries that if the financial and real economy deteriorate further and banks tighten loans, many companies could fall into unprecedented financial distress.

According to the financial sector and related industries on the 25th, the balance of demand deposits and other checking deposits at banks at the end of last month reached 758.4 trillion won, soaring by 29.9 trillion won compared to the previous month. The increase in checking deposits from the beginning of this year to last month reached 74.7 trillion won, significantly surpassing last year's increase of 65.9 trillion won.

Checking deposits allow free deposits and withdrawals but yield almost no interest income, strongly reflecting idle funds in the market that have not found a proper place. An increase in checking deposits means that the amount of 'drifting funds' has grown accordingly. This is closely related to the impact of COVID-19, the ultra-low interest rate policy, and the contraction of the financial investment market.

The turnover rate of deposits is also showing a significant decline. In April, the turnover rate of demand deposits at deposit banks was 17.2, sharply down from 19.5 in the previous month. The deposit turnover rate is calculated by dividing the amount of deposit payments by the deposit balance. A lower turnover rate means fewer deposit withdrawals occurred. It hit a record low of 16.3 in February last year, rose to 20.3 at the end of last year, and is now trending downward again.

A financial sector official said, "The 'financial arteriosclerosis' phenomenon is deepening due to high-intensity regulations by financial authorities following overseas interest rate-linked derivative-linked funds (DLF) and Lime Asset Management incidents," adding, "A kind of 'avoidance-type safe asset' is accumulating, and this trend is expected to continue for the time being."

The number of companies relying on debt is also rapidly increasing. According to the Bank of Korea, the balance of corporate loans in the banking sector at the end of last month was 945.1 trillion won, up 16 trillion won from the previous month. This increase is the third highest since statistics began in June 2009, following April (27.9 trillion won) and March (18.7 trillion won) of this year. It is the largest increase ever recorded for May. Most of the increase in corporate loans was for small and medium-sized enterprises (SMEs), amounting to 13.3 trillion won.

However, SMEs are still crying out that they lack funds. According to the Korea Chamber of Commerce and Industry's recent survey of 308 domestic manufacturing companies titled "Post-COVID Corporate Response Status and Policy Tasks," nearly half (45.2%) responded that their current business conditions have worsened compared to March and April. In particular, after exports (29.2%), financial difficulties (27.3%) were cited as the second most challenging factor.

SMEs with weak financial power, especially ventures and startups, complain that they are virtually defenseless against the impact of COVID-19 and other factors. The CEO of SME A said, "Among manufacturing SMEs, there are many cases where sales have been halved or reduced to one-third compared to the previous year," adding, "They have no choice but to run to banks and beg for help."

Venture companies and startups are even pushed into a 'financial blind spot' as bank loans are difficult to obtain. Choi Sung-jin, CEO of Korea Startup Forum, lamented, "For early-stage startups, it is difficult to get loans from financial institutions unless the founder has personal collateral."

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