Companies Accumulate Cash Without Investing... Increase in Fixed Deposits Over 1 Billion Won (Comprehensive)

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

[Asia Economy Reporters Park Sun-mi and Kim Eun-byeol] As the spread of the novel coronavirus infection (COVID-19) has increased 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 stood at 741.881 trillion KRW, of which time deposit accounts exceeding 1 billion KRW recorded a balance of 453.381 trillion KRW. This accounts for 61.11% of total time deposits. This ratio is not only higher than the 60% recorded at the end of June last year but also the highest ever.

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 rose 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. This is 0.13 percentage points lower than 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 over 1 billion KRW are corporations rather than individuals, indicating that companies are hoarding cash instead of utilizing it for investments.

Decrease in Corporate Facility Investment Execution Amount
Bank Loans Also Slow Down as Cash is Hoarded

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 had planned to build a 3 trillion KRW naphtha cracker (NCC) and downstream plant in Indonesia this year, but the plan was canceled. Due to COVID-19 spread, movement restrictions, and unpredictable economic forecasts, new investments were deprioritized. A representative of Company A said, "We were scheduled to start construction 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."

As cash is just piled up, borrowing from banks has also decreased. While loans surged for small and medium-sized enterprises (SMEs) facing urgent financial needs due to COVID-19, loans to large corporations significantly declined. As of the end of November, the loan balance for large corporations at the four major banks?KB Kookmin, Shinhan, Hana, and Woori?stood at 69.8922 trillion KRW, falling 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. Large corporations actively increased cash assets in preparation for economic uncertainty at the early stage of COVID-19 spread, resulting in explosive growth in large corporate loans until the first half of the year. However, having already secured liquidity, large corporations could not find suitable investment destinations, leading to a brake on loan growth in the second half.

With the end of COVID-19 being a key variable influencing industrial economic performance, if the spread 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. Hana Financial Management Research Institute predicted, "Conservative fund management will continue amid limited corporate performance improvement," adding, "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.