Companies Prefer 'Saving' Over 'Investing'... Fixed Deposits Exceeding 1 Billion Reach Record High

61.11% of Total Time Deposits Are Large Deposits Exceeding 1 Billion Won

[Asia Economy Reporters Sunmi Park, Eunbyeol Kim] As the spread of the novel coronavirus infection (COVID-19) increases economic uncertainty, the scale of time deposits with lump sums exceeding 1 billion KRW has reached an all-time high. This means that companies are piling up money in banks instead of actively investing.

According to the Bank of Korea on the 31st, as of the end of June this year, the balance of bank time deposits was 741.881 trillion KRW, of which the balance of time deposit accounts exceeding 1 billion KRW was 453.381 trillion KRW. 61.11% of total time deposits correspond to large deposits exceeding 1 billion KRW. This ratio is not only higher than 60% at the end of June last year but also the highest ever recorded.

The scale of time deposits exceeding 1 billion KRW, which was 292.385 trillion KRW at the end of June 2015, increased by 160.996 trillion KRW over five years. The proportion of large deposits in total time deposits also increased by 10 percentage points over five years. On the other hand, the proportion of accounts with time deposits exceeding 1 billion KRW was 0.17% at the end of June this year, the lowest ever. It decreased by 0.13 percentage points compared to five years ago. Overall, while the proportion of high-value accounts decreased, the amount of money accumulated in each individual account increased. Most depositors with deposits exceeding 1 billion KRW are corporations rather than individuals, meaning that companies are hoarding cash instead of utilizing it for investments.

Decrease in Corporate Facility Investment Execution Amount
Bank Loans Also Slow Down Due to Cash Hoarding

According to the Korea Development Bank's "2020 Second Half Facility Investment Plan Survey" report, due to the global economic recession caused by COVID-19, the tentative execution amount of domestic companies' facility investments this year was 164.4 trillion KRW, down 1.1% (18 trillion KRW) from last year. By industry, facility investments decreased in the order of Display -13.1%, Petrochemicals -9.6%, and Automobiles -9.2%.

Petrochemical Company A planned to build an approximately 3 trillion KRW naphtha cracker (NCC) and downstream plant in Indonesia this year, but the plan was canceled. Due to the spread of COVID-19, movement is restricted, and with economic forecasts being unpredictable, new investments were deprioritized. A representative of Company A said, "Construction was scheduled to start this year, but we are endlessly waiting," adding, "Companies cannot foresee even a step ahead, so they inevitably hesitate to invest in new growth engines."

Because companies are just hoarding cash, borrowing money from banks has also decreased. While loans surged for small and medium-sized enterprises urgently needing funds due to COVID-19, loans to large corporations significantly decreased. As of the end of November, the loan balance for large corporations at the four major banks?KB Kookmin, Shinhan, Hana, and Woori?was 69.8922 trillion KRW, breaking below 70 trillion KRW for the first time in nine months since February.

This is about 6 trillion KRW less than the peak loan balance of 75.6 trillion KRW in April. As the end of COVID-19 remains a key variable affecting industrial economic performance, if the spread of COVID-19 continues next year, companies are likely to continue hoarding cash. The Korea Industrial Alliance Forum (KIAF) forecasted that facility investments in seven major industries including semiconductors, automobiles, and electronics will decrease by 3.1% compared to this year and by 14.3% compared to last year.

The Hana Financial Management Research Institute stated, "Conservative fund management will continue amid limited corporate performance improvements," and predicted, "Subsequently, corporate investment execution and precautionary cash demand will decrease, leading to a slowdown in inflows of short-term financial products targeting corporations in the banking sector."

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