"Road Regular Deposits"... Why 12 Trillion Won Suddenly Poured into Banks

Time Deposits Increase from 805.8 Trillion Won to 817.6 Trillion Won
Shift Back to Safe Assets After Ra Deok-yeon Gate
Time Deposit Interest Rate at Around 3.7%

On the 9th, as major commercial banks lowered their fixed deposit interest rates from the 5% range to the 4% range, the fixed deposit interest rate was displayed on an electronic board at the entrance of a bank in Seoul. Photo by Jinhyung Kang aymsdream@

As interest rates fell, funds that had dwindled in bank time deposits have flowed back into the market. This appears to be influenced by funds exiting the stock market due to the Radukyeon Gate incident involving stock manipulation forces, shifting toward safer assets. The interest rates on time deposits have also stopped declining, leading to an increase in bank deposit balances.

According to the financial industry on the 5th, the balance of time deposits at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was about 817.6 trillion won as of the end of May, a sharp increase of 12 trillion won from the previous month (about 805.8 trillion won). Time installment savings also rose by 1 trillion won to about 39 trillion won during the same period.

In the case of time deposits, the balance peaked at 827.3 trillion won in November last year when interest rates were at their highest. This was a period when time deposits at commercial banks were popular as rates rose above 5%. However, with the Bank of Korea freezing the base rate at the start of the new year and expectations that the rate hike trend had ended, the stock market revived. Consequently, interest in time deposits declined.

A representative from a commercial bank said, "The trend of 'money move' was reversed by the 'Radukyeon Gate' that broke out at the end of April," adding, "Individual investors seem to have returned to banks thinking 'safe assets are still the best'." While the balance of time deposits increased, investor deposits, which are standby funds for the stock market, decreased. According to the Korea Financial Investment Association, investor deposits were about 48 trillion won in March this year, increased to 53 trillion won in April, and even reached 54 trillion won last month. However, following the aftershock of the Radukyeon Gate, major KOSDAQ secondary battery stocks plummeted, causing investor deposits to fall to around 49 trillion won by mid-May.

As of the 5th, the interest rates on time deposits at the five major banks are around 3.7%. For one-year products, KB Star Time Deposit offers 3.71%, Solpyeonhan Time Deposit 3.7%, Hana Time Deposit 3.7%, WON Plus Deposit 3.73%, and NH All-in-e Deposit 3.8%. Another commercial bank official stated, "Rates fell to the low 3% range in February this year, then slightly rose and have since remained in the high 3% range."

Although time deposits have reversed to an increasing trend, the demand deposits (checking accounts) balance, which banks need most, continues to decline. Customers who keep money in non-time deposits like parking accounts earn much lower interest rates, allowing banks to raise funds at a lower cost. While higher balances are better for bank profitability, the declining balance is a concern for banks. As of May, the demand deposit balance at the five major banks was about 585.5 trillion won, down 5.5 trillion won from the previous month (about 591 trillion won).