I Solved It That Way... But Savings Exploded in the First Half of the Year

Despite Massive Liquidity Injection, Banks Only Accumulate Funds
Deposits Rise by 108.7 Trillion KRW in First Half...Record High

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[Asia Economy Reporter Kim Hyo-jin] In the first half of this year, bank deposits increased to an all-time high. This means that despite the government and financial and monetary authorities injecting large amounts of money through successive cuts in the base interest rate and various loan and fiscal support measures to respond to the novel coronavirus infection (COVID-19), a significant portion flowed into bank vaults.

Although liquidity was actively supplied, money is not circulating properly, which is expected to have considerable influence on future policy direction formulation.

According to the Bank of Korea on the 27th, bank deposits at the end of June reached 1,858 trillion won, an increase of 10.87 trillion won compared to the end of last year. This is the largest increase on record for the first half of the year. Deposits increased by 3.59 trillion won in February, when the spread of COVID-19 intensified, and by 3.31 trillion won in March. In May, deposits rose by 3.34 trillion won. In June, when COVID-19 was relatively well managed, deposits increased by 1.86 trillion won.

In the first half of the year, corporate and self-employed loans increased by 7.77 trillion won, and household loans increased by 4.06 trillion won. A financial sector official pointed out, "Due to the COVID-19 impact, the overall consumer market has become rigid, and concerns about future fund management have grown, so money has not been effectively circulated in the market," adding, "The effect of liquidity measures was not that significant."

One of the main reasons appears to be the freezing of the financial investment market due to successive financial accidents such as private equity fund incidents since last year and the resulting high-intensity regulations. Of the increase in bank deposits, 10.76 trillion won was in demand deposits. Conversely, time deposits decreased by 230 billion won. This indicates that there is a large amount of market funds waiting without suitable uses or investment destinations.

This also means that Korea is not exempt from the global trend where increased savings prevent the effective impact of liquidity supply. The Financial Times (FT) recently highlighted this issue in a report titled "Soaring savings rates pose a political dilemma for central banks worldwide."

Kim Yong-beom, First Vice Minister of Strategy and Finance, also expressed concern at the 18th Innovation Growth Strategy Review Meeting and Policy Review Meeting on the 24th, stating, "It is a problem of safe consumption being difficult rather than a lack of demand."

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