Banks That Issued Bank Bonds... Slowing Down from June

Net Issuance Turns Negative for the First Time This Year
Demand Deposits Without Investment Destinations
566.316 Trillion Won Recorded at 5 Major Banks
77.8 Trillion Won Increase Compared to Last Year

[Asia Economy Reporter Kangwook Cho] The net issuance amount of bank bonds, which commercial banks issue for long-term funding, fell to a 'negative' level last month. This is the first negative figure this year. In response to the financial support needed due to the impact of the novel coronavirus disease (COVID-19), commercial banks have increased the issuance of bank bonds this year to secure funds. However, unable to find suitable investment destinations, the funds held by banks on standby have significantly increased this year, leading to a slowdown in issuance. It is also interpreted that the phenomenon of funds flowing into assets such as real estate and stocks, rather than into demand sectors experiencing liquidity crises, played a role.

According to the Korea Financial Investment Association and financial authorities on the 6th, a total of 27.8041 trillion KRW of bank bonds were net issued in the first half of this year. The net issuance amounts in January and February were only 550 billion KRW and 463.3 billion KRW respectively, but surged to 9.38 trillion KRW in March, 10.34 trillion KRW in April, and 9.3708 trillion KRW in May. The sharp increase in net issuance from March is analyzed to be due to the Bank of Korea including bank bonds in the unlimited repurchase agreement (RP) purchase targets to supply liquidity to the market, which greatly increased demand. Although it sharply dropped to -900 billion KRW last month, the total issuance of bank bonds in the first half of this year exceeded 30 trillion KRW compared to the same period last year, which recorded net redemption (net issuance amount of -2.9016 trillion KRW).

In the market, there are concerns that the net issuance amount of bank bonds turning negative amid the ongoing COVID-19 situation should be carefully observed. Bank bonds are generally issued by commercial banks to raise long-term funds. The net issuance amount is the amount obtained by subtracting the repayment amount of existing bank bonds from the issuance amount of new bank bonds, serving as an indicator to gauge companies' funding status. Generally, increasing new bank bond issuance without repaying existing bonds is interpreted as a sign that liquidity supply to the market is needed.

The reason for the sharp decline in net issuance is attributed to the issuance amount in June being about half of that in March, April, and May. In fact, the issuance amount of bank bonds, which was around 9 to 10 trillion KRW in January and February, surged to 18 trillion KRW in March and exceeded 20 trillion KRW in April and May. However, in June, it decreased to the low 10 trillion KRW range, returning to the level seen at the beginning of the year. The repayment amount due to maturity has steadily remained in the 9 to 10 trillion KRW range.

In the financial sector, there is speculation that banks, which hastily sought liquidity in line with the government's financial support policy, are now slowing down. This is due to a significant increase in demand deposits held by banks, as they have been unable to find suitable investment destinations. In fact, as of the end of last month, the demand deposit balance of the five major domestic banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?was recorded at 566.316 trillion KRW. This is an increase of 77.8 trillion KRW compared to the end of last year, more than double the increase of 27.9 trillion KRW in the second half of last year. Bank demand deposits include funds that can be withdrawn or deposited at any time, such as checking accounts and money market deposit accounts (MMDA).

Meanwhile, liquidity in circulation has surpassed 3,000 trillion KRW for the first time ever. According to the Bank of Korea, as of the end of April, the broad money supply (M2) recorded 3,018.6 trillion KRW. M2 includes cash and demand deposits, as well as money market funds (MMF), time deposits and savings deposits under two years, beneficiary certificates, certificates of deposit (CD), repurchase agreements (RP), financial bonds under two years, and money trusts under two years?short-term financial products that can be quickly converted into cash. The Bank of Korea explains that the broad money supply has greatly increased as companies and households secured large amounts of funds through loans due to the economic downturn caused by the COVID-19 crisis.

There are concerns that the liquidity and standby funds in the market are flowing into stock and real estate investments. A financial sector official said, "The problem is that financial support for economic stimulus is concentrating on seeking investment destinations such as stocks and real estate, rather than on sectors actually experiencing liquidity crises," adding, "Considering these factors, it appears that banks have started to slow down the pace of bank bond issuance."

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