'Corona Economic Uncertainty' Despite 0% Interest Rates, Money Flows into Time Deposits (Comprehensive)

5 Major Banks' August Balance 628.62 Trillion Won... Increased by About 1 Trillion Won from Previous Month
Turned to Growth After 5 Months... Corporate Growth Outpaces Individual Growth

[Asia Economy Reporter Jo Gang-wook] Last month, fixed deposits at the five major commercial banks surged by about 1 trillion KRW. This marks the first increase in five months since the outbreak of COVID-19. Despite the fact that deposit products with interest rates in the 0% range now account for over 70% of all products, the recent signs of a COVID-19 resurgence have heightened concerns about economic uncertainty, leading to an expanded preference for safe assets.

According to the financial sector on the 3rd, the balance of fixed deposits at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?stood at 628.62 trillion KRW last month. This represents an increase of 9.547 billion KRW (0.15%) compared to the previous month (627.6655 trillion KRW).

The fixed deposit balances at the five banks had been declining for four consecutive months after reaching 652.3277 trillion KRW in March. The decline accelerated from 2.7079 trillion KRW in April to 5.8499 trillion KRW in May, and notably, in June, an abnormal outflow of over 10 trillion KRW (10.6785 trillion KRW) occurred within a single month. In July, when COVID-19 somewhat subsided, the decrease narrowed to 5.4259 trillion KRW, about half of the previous month’s drop, but still exceeded 5 trillion KRW, indicating a continued decline in the attractiveness of fixed deposits.

The appeal of fixed deposits diminished due to the deepening low-interest-rate environment, with bank deposit rates falling into the 0% range, and the acceleration of the economic downturn caused by COVID-19 reduced the surplus funds available to be parked in fixed deposits compared to before. The 'debt investment (debt-fueled investment)' craze, where loans are taken to invest in stocks, also contributed to this trend.

In fact, the current average interest rate on fixed deposits at the five major commercial banks is about 0.9% per annum, which is 0.75 percentage points lower than the 1.65% recorded during the same period last year.

According to the Financial Supervisory Service’s integrated financial product comparison disclosure site, 'One Look at Financial Products,' as of this date, among 51 fixed deposit products offered by 21 domestic banks, 37 products have interest rates in the 0% range. Their share has rapidly increased to 72.5% from less than 5% at the beginning of the year.

Among one-year maturity products, Hana Bank’s 'Little Big Fixed Deposit' offered the highest interest rate at 1.3% per annum, followed by 'Hana OneQ Fixed Deposit' (1.20%) and 'Main Transaction Fixed Deposit' (1.15%). NH Nonghyup Bank and Shinhan Bank offered products barely reaching 1%, while KB Kookmin Bank and Woori Bank had no fixed deposit products exceeding 1%. Even Hana Bank’s Little Big Fixed Deposit has a base interest rate of only 0.5%, so excluding preferential rates, it is effectively a 0% range deposit product.

However, despite such ultra-low interest rates, the increase in fixed deposits last month after five months of decline clearly reflects growing concerns that the economic situation may worsen. Notably, the increase in fixed deposits was more pronounced among corporations than individuals.

According to a recent business outlook survey conducted by the Korea Federation of Small and Medium Business targeting 3,150 SMEs, the September Business Outlook Index (SBHI) was 67.9, down 3.0 points from the previous month. Compared to the same month last year, it dropped by 15.3 points. The outlook for the economy, as seen by SMEs, has turned downward again after four months due to the impact of the COVID-19 resurgence, increasing economic uncertainty and leading to a tendency to lock funds in safe assets like fixed deposits rather than investing.

A representative from a commercial bank said, "Even with deposit interest rates at historically low levels, fixed deposits, especially from corporate clients, have increased. With exports declining for six consecutive months and the second-quarter economic growth rate hitting the lowest level since the financial crisis, it appears that companies are securing funds safely instead of investing."

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