5 Major Banks' Time Deposits Surpass 800 Trillion Won... Concentration Phenomenon Intensifies

Rising Deposit Interest Rates and Core Deposit Outflows... Driving Up Loan Interest Rates

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] The total amount of time deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) has surpassed 800 trillion won. This is because idle funds in the market are rapidly flowing into deposits and savings accounts, which are classified as 'safe assets,' due to the base interest rate hike and the resulting weakness in the asset market.

According to the financial sector on the 6th, the balance of time deposits at the five major banks at the end of last month was 808.2276 trillion won. This represents an increase of 47.7231 trillion won (6.3%) compared to the end of the previous month and 153.2917 trillion won (23.4%) compared to the end of last year. In September, the increase in time deposits at all deposit banks reached 32.5 trillion won, the highest since statistics began, and there is a high possibility that this record will be broken within a month.

The reason funds are flowing into deposits and savings accounts is that the base interest rate hike has rapidly increased deposit interest rates as well. According to the Bank of Korea, the deposit interest rate (time deposits, 1 year) at deposit banks surged by 200 basis points (1bp=0.01%) from 1.83% in January this year to 3.83% as of last September. Recently, it is not uncommon to find deposit products with interest rates in the 4-5% range at commercial banks and 7-8% range at mutual finance institutions.

On the other hand, the asset market has been hit directly by the interest rate hike. During the same period, the KOSPI index fell by 19.1%, and the KB Housing Sales Price Index dropped by 0.79% (nationwide basis). Accordingly, standby funds for investment are also decreasing. As of the end of last month, the demand deposit balance at the five major banks was 626.0159 trillion won, down 29.999 trillion won compared to the end of the previous month. Considering that the decrease in demand deposits from the end of August to September was about 4.5 trillion won, the outflow is accelerating.

The concentration of funds in deposits and savings accounts is leading to an increase in loan interest rates. The Cost of Funds Index (COFIX), which serves as the benchmark for mortgage loan interest rates in the banking sector, represents the weighted average interest rate of funds raised by eight domestic banks. It is directly linked to the interest rates of deposit products such as deposits, savings, and bank bonds actually handled by banks. In other words, when deposit interest rates rise, loan interest rates inevitably follow.

This year, the cost of funds in the banking sector surged, with the COFIX based on new transactions rising from 1.64% in January to 3.40% last September, an increase of 136 basis points (1bp=0.01%). The COFIX rate based on new transactions exceeding the 3% level is the first time in 10 years. The COFIX based on outstanding balances also rose to 2.52%, the highest level in about seven years.

A financial sector official said, "Since additional interest rate hikes are expected throughout the year, the core deposit outflow is inevitable, and the reverse money move into safe assets such as deposits and savings will continue," adding, "If this situation persists, mortgage and credit loan interest rates could rise to the 8% range within the year."

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