Disappointed by the 'Gongmoju Bubble'? Another 5 Trillion Won Poured into October Time Deposits

Controversy Over IPO Bubble Grows as Low Interest Rates See Third Consecutive Month of Increase

[Asia Economy Reporter Jo Gang-wook] Last month, the time deposits at major commercial banks surged by about 5 trillion KRW. Despite the ultra-low interest rates dropping to the 0% range, time deposits increased for three consecutive months in August, September, and October. This is attributed to the prolonged COVID-19 pandemic, which heightened concerns over economic uncertainty and even sparked debates over IPO bubbles, leading to an expanded preference for safe assets.

Time Deposit Balances at Five Major Banks in October... Increased by 4.93 Trillion KRW Compared to Previous Month

According to the financial sector on the 5th, the time deposit balance at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?was recorded at 640.7257 trillion KRW last month. This represents an increase of 4.9293 trillion KRW compared to the previous month (635.7964 trillion KRW).

The time deposit balances at the five major banks had been declining for four consecutive months after reaching 652.3277 trillion KRW in March. The decline accelerated, with decreases of 2.7079 trillion KRW in April and 5.8499 trillion KRW in May, culminating in an abnormal outflow exceeding 10 trillion KRW in June (10.6785 trillion KRW). In July, when the COVID-19 situation somewhat eased, the decrease narrowed to 5.4259 trillion KRW, about half of the previous month, but still exceeded 5 trillion KRW, indicating a continued decline in the attractiveness of time deposits.

This trend has been interpreted as investors withdrawing funds in search of better investment opportunities as bank deposit interest rates fell to an annual 0-1%, reducing their appeal from an interest perspective. The acceleration of the economic downturn due to COVID-19 also reduced the surplus funds available to be held in time deposits compared to before. Additionally, the craze for investing with borrowed money?known as 'debt investment (bit-tu)' and 'borrowing to the soul (young-kkeul)'?also played a role.

Currently, the annual average interest rate for time deposits at the five major commercial banks is around 0.8-0.9%, down approximately 0.8 percentage points from 1.65% during the same period last year. This means that depositing 100 million KRW in a time deposit yields less than 1 million KRW in annual interest. According to the Financial Supervisory Service's integrated financial product comparison disclosure site 'Financial Products at a Glance,' as of this date, among 49 time deposit products offered by 21 domestic banks, 35 products (71.4%) offer interest rates in the 0% range.

Three Consecutive Months of Growth... IPO Bubble Debate and Return to Safe Assets Influence

Despite these ultra-low interest rates, time deposits surged by 1 trillion KRW in August, 7 trillion KRW in September, and 5 trillion KRW in October, marking three consecutive months of rapid growth. This is interpreted as a sign that some of the funds that had flowed out of bank deposits like an ebb tide due to the debt investment craze are returning. In particular, the 'Big Hit Shock,' which attracted over 58 trillion KRW, sparked debates over IPO bubbles, which also influenced the return to safe assets.

A financial sector official stated, "The increasing number of stocks trading below their IPO prices in the stock market has intensified the bubble debate, which appears to have cooled the debt investment and borrowing frenzy, leading investors back to safe assets." The official added, "Recently, banks have slightly raised deposit interest rates, which likely influenced efforts to secure liquidity that had been drained due to deposit decreases, loan surges, and COVID-19 support."

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