[Money Move Intensifies] Capital Outflow from Stock Market... Money Accumulates in Banks

End of South Korea's 'Zero Interest Rate' Era
Emergence of New COVID-19 Variant Omicron
Unstable Stock Market... Bank Deposits Attracting Funds

[Asia Economy Reporters Sunmi Park and Kiho Sung] In the domestic financial market where the 'zero interest rate' era has ended, there are signs that the 'money move' phenomenon?where funds that had poured into the stock and real estate markets are shifting to banks?is beginning in earnest. With an additional base rate hike this month and the emergence of the new COVID-19 variant Omicron, it is expected that the avoidance of risky assets will intensify, accelerating the speed of capital flow.

According to the financial industry on the 29th, as of the 24th of this month, the total balance of time deposits at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 653.1354 trillion KRW. Since the Bank of Korea raised the base rate on August 26, there had been no significant movement in market funds, but last month a large amount of lump-sum money flowed into banks. The net increase in time deposits in October alone was 20.4583 trillion KRW, marking the largest growth in the past three years.

In particular, following the Bank of Korea’s 0.25 percentage point base rate hike on the 25th, the inflow of funds into banks is expected to accelerate further. This is due to commercial banks rapidly raising savings and time deposit interest rates by up to 0.40 percentage points, enhancing the previously meager appeal of deposit interest rates. Bank officials reported that inquiries related to savings and time deposits at bank counters have more than doubled compared to usual.

The preference for safe assets amid recent intensified domestic and international uncertainties?such as the U.S. tapering (asset purchase reduction) and the emergence of new COVID-19 variants?is also considered a factor fueling the money move. A bank official stated, “Raising the loan threshold has made investing with borrowed money (debt investment) more difficult, which has also influenced the flow of funds,” adding, “Money continues to flow into bank deposits this month as well, and the increase is expected to grow further with the base rate hike.”

The dollar, a representative safe asset, is also accumulating in banks. According to the Bank of Korea, as of the end of October this year, resident dollar deposits increased by 5.37 billion USD to reach 87.52 billion USD, marking the highest level since related statistics began. Dollar deposits have been on the rise for three consecutive months through August (80.38 billion USD), September (82.15 billion USD), and October.

On the other hand, funds are rapidly flowing out of the stock market. According to the Korea Exchange, the KOSPI opened at 2,906.15, down 30.29 points (-1.03%) from the previous trading day, and as of the morning of this day, the average daily trading value of the KOSPI in November shrank to 10.7952 trillion KRW. This is the lowest level in one and a half years since May last year. Compared to 26.4778 trillion KRW at the beginning of the year, this represents a decrease of about 60%.

The KOSPI trading value has been declining for three consecutive months since recording 15.5218 trillion KRW in August. As the stock market loses momentum, demand deposits at banks?which can be used as standby funds for investment?also decreased by about 1 trillion KRW from 637.5782 trillion KRW at the end of September to 627.3916 trillion KRW at the end of October.

Professor Junggeun Oh of Konkuk University’s Department of Economics said, “Due to increasing uncertainty in the capital market, large sums of money are flowing into stable banks,” and predicted, “The money move phenomenon, where funds continuously flow out of the stock market into bank deposits, will persist for a considerable period.”