'Bolmae' Financial Companies' Trusts Attract Market Funds

Riding Low Interest and Low Growth Trends, Financial Companies' Trusts Gain Popularity
Last Year, Bank Sector Trust Product Investments Near 500 Trillion Won
Big 4 Banks' Trust Fee Profits Also Up 10.4% Year-on-Year

[Asia Economy Reporter Song Seung-seop] Despite the fund mis-selling scandal and government regulations, trust products in the financial sector are showing remarkable growth. As the trust assets under management steadily increase, fee income is also surging. This is interpreted as a result of market funds, unable to find investment destinations due to the ongoing low interest rate and low growth environment, flocking to trust products.

According to the Financial Supervisory Service on the 30th, the investment funds in trust products entering the banking industry at the end of last year reached 492.6 trillion won, an increase of 12.2 trillion won (2.5%) from 480.4 trillion won the previous year. Considering it was only 355 trillion won in 2016, this represents a 38.4% increase.

A trust refers to a system where a customer transfers property rights to a trustworthy individual or institution (trustee) for management or disposal. The trustee manages or disposes of the property according to operational instructions to generate profits or achieve specific objectives. The advantage is the stable utilization of the professional management capabilities of trust companies, with a total of 61 companies operating trust businesses domestically.

Specifically, money trusts, which receive and manage money and return principal and profits in money, amounted to 271.9 trillion won, exceeding property trusts at 220.5 trillion won. Compared to the previous year, money trusts increased by about 13 trillion won (5.3%), while property trusts decreased by 1.8 trillion won (0.8%). However, among property trusts, real estate trust products slightly increased from 50.2 trillion won to 51.1 trillion won.

As funds continue to pour into trust products offered by the banking sector, fee income is generally on the rise. As of the first quarter, trust-related fee income of the four major financial holding companies?KB, Shinhan, Hana, and Woori Financial?reached 361.3 billion won. This is a 10.4% (34.2 billion won) increase from 327.1 billion won in the same period last year. In particular, KB Financial Group recorded the largest scale and growth with fee income increasing by 30.9 billion won (22.6%) to 167.4 billion won.

Industry and Authorities Promote 'Market Activation' as Funds Flow into Trusts

The banking industry is actively attracting customers by launching related trust products. On the same day, Hana Bank signed a living trust contract with Kim Sang-hee, chairman of the Korean Entertainers' Unity Association, engaging in celebrity marketing. A living trust is a trust product that manages assets and transfers inheritance to designated beneficiaries upon death. Shinhan Bank also launched the ‘S Life Care Gift Trust’ last month, which allows for prior gifting, long-term investment, and tax savings. This product was created by newly incorporating exchange-traded funds (ETFs) into the assets managed by existing gift trusts.

Unlike in the past, it is explained that funds without suitable investment destinations due to low returns or high volatility have flowed into trust products. A representative from a commercial bank said, "Interest in ETF trust products has greatly increased due to the direct investment craze among individual investors," adding, "We plan to expand the supply of related products that can be used for asset management." Another commercial bank official hinted, "Customers who do not invest directly often sought trust-type ETFs at the counters."

The increase in the elderly population is also a background factor enhancing the attractiveness of trust products. According to a report titled ‘Mid- to Long-term Development Prospects and Tasks of the Trust Industry in the Aging Era’ published by the Korea Capital Market Institute in January, aging is the most direct factor affecting the development of trust asset management. Elderly people, who have a high demand for retirement pensions, need to convert property income into cash, and trusts inherently have the nature of comprehensive asset management services, making them increasingly attractive. The ability to transfer property rights and provide inheritance services was also cited as an advantage.

Financial authorities are considering ways to activate the trust market in response to the intensifying aging population. On the 18th, the Financial Services Commission announced plans to promote ‘Strengthening the Comprehensive Asset Management Function of the Trust Industry’ to expand growth engines. This aims to strengthen the comprehensive asset management function of the trust industry to meet the needs of retirement asset management and promote the development of products specialized for the elderly. The goal is to expand the scope of trust assets and allow various structures to reorganize the market itself into a comprehensive asset management system for old age preparation.

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