Due to High Interest Burden... Corporate Deposits Decline for the First Time in 19 Years

Last year, the balance of corporate won deposits at deposit banks showed a decline for the first time in 19 years. This is interpreted as the result of companies feeling the burden of interest payments in a high-interest-rate environment and engaging in deleveraging (debt reduction).

According to the Bank of Korea Economic Statistics System on the 21st, the balance of corporate won deposits at the end of last year was 637.5018 trillion won, down 5.8262 trillion won (0.91%) from the previous year. The decrease in corporate deposit balances is the first since 2004, marking the second time since the Bank of Korea began publishing related statistics in 1975.

The eventful Year of the Earth Pig (Giheonyeon) is coming to an end. The domestic industry as a whole received a disappointing report card this year. Caught in the 'unprecedented geopolitical uncertainty' caused by the prolonged US-China trade dispute and overlapping Japanese export restrictions, not only export companies but also domestic sectors had a sluggish year. November exports decreased by 14.3% compared to the same month last year, marking the 12th consecutive month of decline. Despite such difficult times, our businesspeople are working day and night to revive the economy's spark. The upcoming Year of the White Rat (Gyeongjanyeon) symbolizes abundance and prosperity. With that energy, we are confident that the Korean economy will sing a powerful song of revival. The lights of Teheran-ro, the heart of the Korean economy, remain lit as if singing a song of hope. / Photo by Kim Hyun-min kimhyun81@

The corporate deposit balance steadily increased since recording 1.0171 trillion won in 1975 but experienced negative growth for the first time in 2004. At the end of 2004, the corporate deposit balance was 135.8117 trillion won, down 4.0765 trillion won (2.91%) from the previous year, and it continued to rise steadily until 2022 before showing a second decline last year.

By deposit type, savings deposits amounted to 522.4406 trillion won, down 4.5984 trillion won (0.87%) from the previous year, and demand deposits also decreased by 1.2279 trillion won (1.06%) to 115.061 trillion won. Savings deposits refer to deposits that can only be withdrawn after a fixed period, such as time deposits, installment savings, and corporate free deposits, while demand deposits refer to deposits that can be withdrawn at any time, such as regular and current accounts.

The decline in corporate deposits is believed to be influenced by the interest rate hikes that began in earnest at the end of 2021. The loan interest rate based on new transactions at deposit banks was 2.81% per annum in 2021, marking a 10-year low, but rose to 4.22% in 2022 and surged to 5.28% last year. This is also the highest level in 12 years since 2012 (5.49% per annum).

Looking at the changes by deposit type, both savings and demand deposits continued to rise until 2021, but demand deposits declined first in 2022 when the U.S. Federal Reserve (Fed) and the Bank of Korea rapidly raised interest rates. At the end of 2022, the balance of corporate demand deposits at deposit banks was 116.289 trillion won, down 13.794 trillion won (10.11%) from the end of the previous year (129.368 trillion won). Both savings and demand deposits decreased last year.

A financial industry official said, "As the high-interest-rate situation continues, corporate depositors feeling the interest burden appear to have started reducing their debt first," adding, "They seem to have used demand deposits to repay debts immediately and, rather than reinvesting matured time deposits, used the funds to repay debts or secure immediate liquidity."