Growing Uncertainty... Demand Deposit Turnover Rate Soars

The demand deposit turnover rate at deposit banks is showing a clear upward trend amid growing uncertainty. According to the Bank of Korea Economic Statistics System on the 17th, the demand deposit turnover rate at deposit banks in the first quarter (January to March) was 18.5 times. This is an increase of 0.9 times compared to the same period last year (17.6 times).

The deposit turnover rate is the value obtained by dividing the monthly deposit payment amount by the average deposit balance. An increase in the demand deposit turnover rate means that economic agents have frequently withdrawn demand deposits entrusted to banks.

The demand deposit turnover rate had been declining steadily during the COVID-19 period, when liquidity surged sharply, reaching a record low of 14.3 times in the third quarter of 2022. However, it turned upward due to overlapping domestic and international factors such as rapid interest rate hikes by central banks including the U.S. Federal Reserve (Fed) and a sharp rise in deposit interest rates following the Legoland incident. In the fourth quarter of last year, when the base rate hikes were nearing their end, demand surged for high-interest deposits, pushing the turnover rate up to around 18.7 times.

This year, as uncertainty grows with the continued delay in the timing of base rate cuts, the demand deposit turnover rate is likely to remain at a high level. Looking at the recent demand deposit balance trends of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), the monthly fluctuations were significant: 616 trillion won in December last year, 590 trillion won in January this year, 614 trillion won in February, 647 trillion won in March, and 616 trillion won in April. The first quarter demand deposit turnover rate also reached 18.5 times, the pre-COVID-19 level.

A financial sector official said, "Since the beginning of the year, the decrease in corporate money market deposit accounts (MMDA) and large initial public offerings (IPOs) have caused significant changes in demand deposit balances," adding, "The increased uncertainty regarding the direction of interest rates seems to have also influenced the fluctuations in the stock and virtual asset markets."

Meanwhile, commercial banks appear to be focusing on securing low-cost deposits, the source of profitability, as the volatility of demand deposits increases. Recently, not only small and medium-sized banks but also large banks have been launching high-interest money market deposit account products, commonly known as parking accounts.

Following Hana Bank’s launch of the 'Daldal Hana Account,' a money market deposit product offering up to 3.0% annual interest on balances up to 2 million won with a limit of 300,000 accounts, Shinhan Bank introduced the 'Shinhan Super SOL Account' the day before, offering up to 3.0% interest on balances up to 3 million won with preferential conditions, limited to 200,000 accounts. The interest rates on these parking account products offered by these banks are higher than those of three internet-only banks, which offer around 2.0%, as well as the rates of major savings banks.

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