Money move accelerates from stocks to banks

Fixed deposit balances grow 55.8 trillion won in two months

Further rate hikes expected to sustain the trend

ATM machines at major banks in Seoul. [Newsis]
ATM machines at major banks in Seoul. [Newsis]

As forecasts grow that the stock market's prolonged range-bound trading will continue, money is flowing back into bank fixed deposits in a reverse money move. Securities deposit balances — funds parked in brokerage accounts awaiting investment — are shrinking rapidly, while fixed deposit balances at banks have surpassed 1,000 trillion won ($730 billion) for the first time in history. Banks are scrambling to win back retail investors who had left, rolling out a string of special-rate deposit and savings products.

According to financial industry data released Wednesday, fixed deposit balances at the five major banks — KB, Shinhan Bank, Hana, Woori Bank and NH — stood at 1,005.23 trillion won at the end of August. It marks the first time the combined fixed deposit balance at the five lenders has crossed the 1,000 trillion won threshold.

The combined balance had fallen from 950.7 trillion won at the end of September last year to 937.46 trillion won at the end of March, before jumping to 949.4 trillion won at the end of June and 991.44 trillion won on Aug. 6. That represents a gain of 55.83 trillion won in roughly two months.

The prolonged correction in the stock market is widely cited as the main driver of the sharp rise in fixed deposits. Share prices surged in the first half of this year following the launch of the Lee Jae Myung administration, a period during which bank fixed deposit balances fell sharply. As inflation concerns emerged in July and pushed share prices lower, funds that had left the banks began returning.

According to the Korea Financial Investment Association, investor deposit balances — money sitting in brokerage accounts — jumped from 87.83 trillion won at the end of last year to 121.63 trillion won in June, before plunging to 99.7 trillion won at the end of August.

"It appears that not only individuals but also companies are actively placing settlement funds — money that cannot afford losses — into fixed deposits as a risk-free product," a commercial bank official said. "Deposit balances are expected to keep rising."

Markets expect the preference for safe assets to persist at least through year-end. The Bank of Korea has left open the possibility of raising its benchmark interest rate, and the US Federal Reserve is also widely expected to raise rates soon to curb inflation. Rate hikes typically exert downward pressure on equity markets. Lingering skepticism toward AI-related stocks, which had led the earlier rally, is seen as another factor reinforcing the flight to safety.

For banks, the surge in fixed deposits is a welcome development. Rising market interest rates have pushed up yields on bank bonds, a key funding instrument. But under the government's inclusive finance policy, banks have found it difficult to fully pass higher funding costs on to lending rates, making it more advantageous to secure funds through fixed deposits, which carry relatively lower costs than bank bonds. The financial authorities have also raised the household loan growth management target from 1.5 percent to 3.0 percent this year, and banks' funding needs are growing amid an expansion of productive finance.

Banks are stepping up marketing efforts to attract deposits, including through special-rate products. Shinhan Bank launched "Shinhan Savings 9-dan," offering a maximum annual rate of 9 percent, last month. Woori Bank has offered "Our Wish Savings" at up to 8.29 percent per year, and NH NongHyup Bank has put out its NH NongSimCheonSim savings product at up to 8.15 percent annually. The top fixed deposit rates currently offered by the five major banks range from 3.20 to 3.30 percent per year.


hyuk@heraldcorp.com