In the first half of this year, the Yeouido financial district saw a surge of money flowing into the stock market as the KOSPI index soared from over 5,000 to nearly 9,000. Many investors withdrew their bank deposits to invest in stocks. This trend is reflected in the numbers: investor deposits, which stood at 87 trillion won at the end of December last year, surged to 139 trillion won by June 4 this year, marking a 60% increase.
The situation began to change at the end of June when the stock market peaked and started to decline, prompting funds to gradually exit the market. This outflow of money has since returned to banks. Experts attribute this shift to investors' aversion to risk amid market volatility and rising deposit rates offered by banks.
The competition among banks to attract deposits has intensified. Securities firms are trying to retain investor funds while banks are vying to reclaim money that flowed into the stock market by offering high-interest products.
Funds Flowing Back to Banks from Stock Market
According to the financial sector on the 26th, the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reported that their time deposit balances reached 1,016.86 trillion won as of October 23. This figure represents an increase of 10.77 trillion won from the end of last month, when it was 1,006.87 trillion won. Compared to the end of June, the net increase in the second half of the year alone is 67.46 trillion won. Approximately 84.3% of the total increase of 79.98 trillion won since the end of January has occurred in the second half of the year.
The time deposit balances at the five major banks have been on a steady rise, coinciding with the Bank of Korea's trend of increasing benchmark interest rates. The balance, which was 936.87 trillion won at the end of January, saw a slight increase to 937.46 trillion won by the end of March, and then rose to 949.40 trillion won by the end of June, marking a 1.3% increase. Following rate hikes in July and August from 2.5% to 2.75% and then to 3%, the balance surpassed 1,000 trillion won, reaching 1,006.87 trillion won by the end of September. In October, it reached an all-time high of 1,010 trillion won.
In contrast, the investor deposits at securities firms showed a completely opposite trend during the same period. According to the Korea Financial Investment Association, investor deposits this month fell to 88.68 trillion won, a decrease of about 51 trillion won (36.5%) compared to the record high of 139.70 trillion won in the first half of the year. Typically, investor deposits are higher in the second half than in the first, with fluctuations around 10 trillion won, making this year's decline particularly unusual. Analysts suggest that increased volatility in the KOSPI has led weary investors to leave the stock market for safer, high-interest bank deposits.
"Offering 0.1% More"... Intense Competition for Deposits
The flow of money from banks to securities firms and back to banks has sparked a competitive race for investor funds. Banks are launching deposit products offering around 4% interest rates. NH Nonghyup Bank's 'NH All One Bank 10th Anniversary Deposit' offers a 3.9% interest rate and sold 500 billion won worth in just two weeks. The bank is preparing a second special sale at the end of this month to meet continued demand. Shinhan Bank's 'Super SOL Welcome Time Deposit,' introduced earlier this month, offers a maximum annual interest rate of 4%, attracting about 400 billion won, or 80% of its target, by today.
Securities firms are countering with issuance notes offering interest rates 0.5% to 2% higher than banks, ranging from 4.5% to 6%. Korea Investment & Securities, the leading issuer of notes, is currently offering a special issuance note with a 4.6% interest rate for new account holders. Samsung Securities is also selling a savings product with a 4.6% interest rate for one year and a fixed-term product offering 4.05%. Hana Investment & Securities has launched issuance notes with rates of 4% and 4.35% for savings. Shinhan Investment & Securities and Kiwoom Securities have introduced one-year issuance notes with interest rates of 4.05% and 4%, respectively.
Some products are offering rates close to 6%. Kiwoom Securities recently launched a special issuance note with a pre-tax annual interest rate of 5.80% for a three-month term. Meritz Securities, which recently received approval for issuance notes, is preparing a product with a maximum interest rate of 5.8% by the end of this month.
Experts believe that uncertainty surrounding the stock market will persist, potentially solidifying the trend of money movement as a long-term phenomenon. Kang Sung-jin, a professor of economics at Korea University, stated, "The recent rise in deposit rates seems to have increased the appeal of deposits. With limited options for other investments like real estate, funds that cannot find suitable investment avenues are moving into deposits." A securities industry official added, "As uncertainty in the stock market grows, the trend of liquidity flowing into banks will be an unavoidable flow until at least the first half of next year, and securities firms will have no choice but to continue offering special products to retain investors."
* This article has been translated by AI.
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