Impact of Interest Rate Hikes... Households Increase Savings, Reduce Stocks and Loans

Due to the steep interest rate hikes, households are reducing loans and stock investments while continuing to increase savings deposits. Meanwhile, companies are increasing loans as demand for working capital rises due to higher raw material prices and exchange rates.

According to the provisional flow of funds statistics released by the Bank of Korea on the 5th, the net fund operation amount of households (including self-employed individuals) and non-profit organizations as of the third quarter of last year was 26.5 trillion won. Compared to the third quarter of 2021 (33.9 trillion won), this decreased by 7.4 trillion won.

The net fund operation amount is the value obtained by subtracting fund procurement from fund operation for each economic agent during the relevant period. Households, with a positive (+) net fund operation amount, supply surplus funds through deposits or investments to companies and the government, whose net fund operation amounts are generally negative (-).

The Bank of Korea explained, "As daily recovery has fully begun and consumption has expanded mainly in face-to-face services, the scale of net operation in financial assets has shrunk compared to the third quarter of 2021."

Looking at fund operations by sector, savings deposits increased from 33.9 trillion won in the second quarter to 37 trillion won in the third quarter due to rising deposit interest rates, a sluggish stock market, and a preference for safe assets.

On the other hand, demand deposits sharply decreased from 7.8 trillion won to minus (-) 16.9 trillion won, and stock operations also shrank from 24.8 trillion won to 5.6 trillion won.

Fund procurement also contracted mainly in loans from deposit-taking institutions due to rising loan interest rates and continued loan regulations. Households procured a total of 11 trillion won in the third quarter, a significant decrease compared to 50.2 trillion won a year earlier.

For non-financial corporate enterprises, net procurement in the third quarter was 61.7 trillion won, an increase of 35.3 trillion won compared to 26.4 trillion won a year earlier.

While loan procurement from deposit-taking institutions expanded due to instability in the securities market, stock issuance significantly contracted. However, bond issuance slightly increased as it concentrated on public enterprises with high credit ratings and decreased among private companies.

Despite increased fund demand, worsening fund procurement conditions led to a significant reduction in fund operations centered on cash and deposits, bonds, equity securities, and investment funds, shrinking from 64.5 trillion won to 20 trillion won over one year.

The net operation scale of the general government expanded from 11.4 trillion won in the third quarter of 2021 to 22 trillion won in the third quarter of last year. The Bank of Korea explained, "As the government consumption growth slowed due to the transition of the quarantine system, the net operation scale expanded."

A loan-related banner in front of a bank in Seoul [Image source=Yonhap News]

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