The combined balance of time deposits at South Korea's five major banks is approaching 1 trillion won. As the stock market experiences volatility and deposit rates rise, funds that were previously seeking investment opportunities are returning to banks.
As of August 13, the balance of time deposits at KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup banks totaled 999.2326 trillion won, an increase of approximately 14.2927 trillion won from 984.9399 trillion won at the end of last month.
The influx of funds into time deposits is accelerating. The five major banks saw an increase of 7.5327 trillion won in May, followed by 4.6837 trillion won in June, and a significant jump of 35.5401 trillion won in July. If this trend continues, surpassing the 1 trillion won mark is expected soon.
In contrast, demand deposits, which are characterized by their liquidity and are often held for investment purposes, are on the decline. The balance of demand deposits, including money market deposit accounts (MMDA), stood at 665.4398 trillion won as of August 13, down from 665.8879 trillion won at the end of last month.
Banking officials attribute the recent shift in funds to a combination of interest rates and stock market conditions. With increased volatility in the stock market, there is a growing demand to keep money in deposits rather than invest aggressively. Additionally, the rise in time deposit rates back to the 3% range has supported this influx of funds.
However, the issue lies in the costs. As the proportion of low-interest demand deposits decreases and the share of relatively high-interest time deposits increases, banks will face higher interest payments to attract deposits. Recently, the highest rates for one-year time deposits at the five major banks have risen to around 3.2% to 3.3%.
Rising funding costs could lead to increases in deposit rates, which may also affect loan rates. The Cost of Funds Index (COFIX), used as a benchmark for variable-rate mortgage loans, is calculated based on the funding costs of major domestic banks. Since the structure reflects rates from savings accounts and financial bonds, an increase in banks' funding costs could exert upward pressure on COFIX.
A banking industry official stated, "What is more important than the increase in deposits is the interest rate at which funds are raised. In a situation where it is difficult to significantly increase household loans, a rapid rise in high-interest deposits could increase the burden on banks regarding fund management and profitability."
* This article has been translated by AI.
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