Customers conduct banking at a branch in Yeouido, Seoul. [Herald DB]
Customers conduct banking at a branch in Yeouido, Seoul. [Herald DB]

As volatility in South Korea's stock market has intensified, money is flowing back into bank deposits. Funds that had chased higher returns in equities are now retreating to the relative safety of fixed deposits, worn down by sharp and unpredictable share price swings. Most analysts, however, view the shift as a temporary refuge rather than a full-scale exodus, noting that demand to re-enter the market remains strong.

Combined fixed-deposit balances at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at 961.47 trillion won ($630 billion) as of Monday, according to banking industry data released Wednesday. That is up 12.07 trillion won from the end of last month.

Inflows into fixed deposits had slowed for some time as money migrated to the stock market in what is known as a "MoneyMove" — a broad shift of funds from savings into equities. Since late April, however, the trend has reversed, and balances have grown by more than 24 trillion won compared with the end of that month.

The rebound in fixed-deposit balances reflects two converging forces: deposit rates, which had hovered around 2 percent, have climbed to the mid-to-upper 3 percent range as market interest rates have risen, while volatility in investment markets has surged.

"Even amid MoneyMove concerns stemming from the bull market that began last year, banks were able to defend their deposit base mainly thanks to inflows from cash-rich companies," a commercial bank official said. "But recently, a significant amount of money from retail investors worn out by stock market volatility has also been flowing in."

The Kospi has swung widely over the past month or so, oscillating between the mid-7,000s and the low 9,000s. Industry officials said that as investment risk has risen, those who entered the stock market relatively recently have been stepping back to wait for conditions to stabilize. There is clear demand, they said, to exit a market at peak volatility and park funds in fixed-rate products.

Still, most analysts are cautious about calling this a "reverse MoneyMove" — a wholesale shift of brokerage deposits back into bank accounts.

For one thing, the funds now entering banks are concentrated in short-term deposit products, a sign that investors want to keep their options open and redeploy capital quickly if the market stabilizes or an attractive opportunity emerges.

Another reason to resist the reverse-MoneyMove label: money realized from stock gains or stop-loss sales appears to be going primarily toward paying down credit line loans — known locally as "minus accounts" — rather than into bank deposits.

When the Kospi fell sharply at the end of last month, utilization rates on those credit lines hit a record high; they have since begun to ease. Investors initially borrowed aggressively to buy the dip, but have pulled back on further purchases as volatility has continued to widen.

Against this backdrop, banks remain deeply concerned about losing deposits to brokerages. Major banks have been rolling out special fixed-deposit products with preferential rates in a preemptive effort to retain the funds that have temporarily flowed in.

"The recent deposit trend is better described as a slowdown in outflows than an actual expansion," another commercial bank official said. "Given the substantial amount of money still waiting on the sidelines to re-enter the market, banks are expected to compete aggressively on rates to capture it first."


ehkim@heraldcorp.com