Kospi volatility drives shift in idle funds; commercial and internet banks raise deposit rates; savings banks offer up to 4% annually to attract customers
As the Kospi swings sharply, funds parked in demand deposits and money market deposit accounts at South Korean banks are flowing rapidly into the stock market. In response, commercial banks and second-tier financial institutions alike have begun raising fixed-deposit rates and launching customer promotions in an all-out effort to defend their deposit bases.
The combined balance of demand deposits — including MMDA accounts — at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori and NH NongHyup) stood at 699.37 trillion won (about $460 billion) as of June 11, according to the financial industry. That marks a decline of 15.29 trillion won (about $10 billion), or 2.14 percent, in just two weeks from the end of last month, when the total briefly topped 700 trillion won — a level not seen in nearly four years — at 714.66 trillion won (about $470 billion).
The drop was particularly sharp in MMDA balances. As of June 11, MMDA holdings totaled 147.70 trillion won, down 9.97 trillion won, or 6.32 percent, from 157.67 trillion won the previous month.
The simultaneous reversal in both demand deposits and MMDA balances — after consistent growth throughout the year — marks a notable shift. It suggests that idle funds sitting on the sidelines moved heavily into equities this month as Kospi volatility peaked. Demand deposits tend to be highly sensitive to market conditions, as they typically hold money that has yet to find a destination in assets such as shares or real estate.
"As major domestic share prices pulled back and swings widened in June, retail investors appear to have read the dip as a buying opportunity and moved large sums into the stock market," a banking industry official said.
Competition for deposit customers is expected to intensify further. Persistent stock market volatility, compounded by the Bank of Korea's signaling of a rate increase, has made it harder for banks to attract retail funds.
Banks have responded by preemptively raising fixed-deposit rates. Rates that hovered mainly around 2 percent annually at the start of the year have climbed into the 3 percent range, with some products approaching the upper end of that band. Among the five major banks, Woori Bank's "Woori First-Transaction Preferential Fixed Deposit" currently offers the highest rate at 3.30 percent annually.
Banks are particularly focused on raising rates for products with maturities under one year, recognizing that customers prefer short-term instruments when markets are volatile.
Shinhan Bank raised fixed-deposit rates by up to 0.15 percentage point across various terms in late May, following an earlier increase in March. For its "Sol Convenient Fixed Deposit," the three-month rate rose from 2.70 percent to 2.80 percent annually, while the six- and nine-month rates climbed from 2.70 percent to 2.85 percent — increases of 1.00 and 1.15 percentage points, respectively, designed to draw in short-term funds. By contrast, the 12-month rate edged up only 0.05 percentage point, from 2.85 percent to 2.90 percent, underscoring the bank's emphasis on shorter maturities.
Internet banks and commercial banks have joined the rate-raising wave. Kakao Bank recently lifted its 12-month fixed-deposit rate by 0.20 percentage point to 3.40 percent annually and raised its six-month rate by 0.10 percentage point to 3.20 percent. Woori Bank (Woori One Plus Deposit, up to 2.90%), KB Kookmin Bank (KB Star Fixed Deposit, up to 2.90%) and Hana Bank (Hana Fixed Deposit, up to 2.90%) all raised rates in tandem.
Some banks are also deploying promotions beyond rate increases to shore up balances. NH NongHyup Bank is running a campaign targeting demand-deposit customers: those who maintain a monthly average balance of at least 1 million won ($720) receive a 5,000-won ($3.60) mobile gift voucher, while those maintaining 3 million won ($2,160) or more receive a 10,000-won ($7.20) voucher. Winners will be announced in July for customers who hold their balances through the end of this month.
Second-tier lenders are moving even more aggressively. OK Savings Bank added a new three-to-six-month tier to its "OK e-Fixed Deposit" product, offering a rate of up to 4.0 percent annually to capture customers moving funds quickly in response to market swings. It also raised the rate on its existing six-to-seven-month tier from 2.81 percent to 4.0 percent — a jump of 1.19 percentage points — as part of a strategy to absorb short-term money movement by offering more granular maturity options. Welcome Savings Bank raised the maximum rate on fixed deposits with maturities of 12 to 24 months from 3.3 percent to 3.6 percent and expanded the deposit ceiling eligible for its preferential rate from 100 million won ($72,000) to 300 million won ($216,000).
The accelerating outflow has heightened anxiety within the banking sector. "The shift of deposits into the stock market was a central topic at our recent issue-review meetings with regional business heads," a senior executive at a commercial bank said. "We will closely monitor the money-movement trend and develop additional strategies to defend our deposit base."
won@heraldcorp.com
