Money Outflows Return... Bank Time Deposits Jump by 7 Trillion Won in One Month

[Asia Economy Reporter Jo Gang-wook] Last month, the fixed deposits of major commercial banks surged by more than 7 trillion won. This marks the second consecutive month of increase following about a 1 trillion won rise in August. This is an unusual surge in the era of ultra-low interest rates, with deposit interest rates falling to the 0% range. In particular, the increase was more prominent among corporations than individuals, and among individuals, it was centered on high-net-worth individuals. This is interpreted as a result of expanded preference for safe assets amid growing concerns about economic uncertainty due to the prolonged COVID-19 pandemic.

Fixed Deposits at Five Major Banks Surge Over 7 Trillion Won Last Month

According to the financial sector on the 6th, the fixed deposit balance at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?last month was recorded at 635.7964 trillion won. This is an increase of 7.1762 trillion won compared to the previous month (628.6202 trillion won).

The fixed deposit balance at the five major banks had shown a continuous decline for four months after reaching 652.3277 trillion won in March. The decline accelerated, with decreases of 2.7079 trillion won in April and 5.8499 trillion won in May, and in June, an abnormal phenomenon occurred with a drop of over 10 trillion won (10.6785 trillion won) in just one month. In July, when the COVID-19 situation somewhat eased, the decrease narrowed to 5.4259 trillion won, about half of the previous month, but still exceeded 5 trillion won, indicating a diminished appeal of fixed deposits.

Since the beginning of this year, as bank deposit interest rates fell to the 0-1% range annually, the attractiveness in terms of interest declined, leading investors to withdraw funds in search of better investment opportunities. The acceleration of the economic downturn due to COVID-19 also reduced the surplus funds that could be left idle in fixed deposits compared to before. Additionally, the craze for investing with borrowed money, such as 'debt investment (bit-tu)' and 'all-in investment (young-kkeul)', also played a role.

Increase Despite 0% Interest Rates "Due to Negative Economic Outlook Concerns"

Currently, the annual average fixed deposit interest rate at the five major commercial banks is around 0.8-0.9%, which is about 0.8 percentage points lower than the 1.65% during the same period last year. This means that depositing 100 million won in a fixed deposit yields less than 1 million won in annual interest.

Despite such ultra-low interest rates, the fixed deposits surged by more than 7 trillion won last month following a 1 trillion won increase in August, clearly reflecting concerns that the economic situation may worsen in the future. Hana Financial Research Institute projected in its '2021 Economic and Financial Market Outlook' report that the Korean economy will show a sluggish recovery next year, with a GDP growth rate of 2.7%. This is lower than the average growth rate after the financial crisis (2.9% from 2011 to 2019). Considering that this year's growth rate is in the negative 1% range, the institute expects the average growth rate for this year and next year to be around 0%.

"Securing Cash" Increase Centered on Corporations Rather Than Individuals

In particular, the increase in fixed deposits was more pronounced among corporations than individuals. This is interpreted as companies securing cash for stable operations and future response strategies amid growing uncertainties, rather than making aggressive investments.

An official from Bank A said, "Typically, changes in fixed deposit balances are driven more by corporate customers than individuals," adding, "Large corporations, lacking suitable investment options, subscribed to fixed deposits with maturities of less than one year, and small and medium-sized enterprises are also accumulating cash in preparation for the prolonged COVID-19 situation."

Funds Concentrated Among High-Net-Worth Individuals... Due to Preference for Safe Assets

Among individual customers, funds were concentrated mainly among high-net-worth clients who are key customers of the Wealth Management (WM) division. This is interpreted as an increase in high-net-worth individuals who prefer to keep their surplus funds simply deposited in banks amid the ongoing economic downturn.

An official from Bank B explained, "Fixed deposit balances increased evenly among individual customers as well as large corporations and small and medium-sized enterprises," adding, "In particular, the increase in fixed deposits among individual customers was notable among high-net-worth individuals, which seems to reflect a trend of moving from risky assets to safe assets amid increased market volatility."

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