Funds Exit Banks and Surge into Stock Market as KOSPI Breaks 4,000 Mark

50 Trillion Won Withdrawn from Five Major Banks by the 27th
Meanwhile, Investor Deposits Hit a Record 81 Trillion Won

With the KOSPI index surpassing the 4,000 mark for the first time in history and the domestic stock market continuing its bullish run, funds are flowing out of banks and into the stock market. So far this month, more than 50 trillion won has left the banks, while investor deposits-funds waiting to be invested in the stock market-have exceeded a record 80 trillion won. The so-called "Money Move" in the financial market has become even more pronounced. Although commercial banks have recently raised their deposit and savings rates, interest rates in the 2% range have proven insufficient to stem the outflow of funds.

According to the financial sector on October 30, demand deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) decreased by 50.839 trillion won as of the 27th of this month. As of the 27th, the balance of demand deposits at these five banks stood at 618.8848 trillion won, down more than 50 trillion won from the previous month's 669.7238 trillion won in less than a month. This is the largest outflow since July last year, when more than 29 trillion won left the banks in a single month. Demand deposits are classified as funds waiting to be invested, given their low interest rates and easy access for withdrawals and deposits. Their volume fluctuates depending on market conditions in the stock or real estate markets. In particular, the pace of fund outflows from banks accelerated around the 24th, as expectations for the "KOSPI 4000" grew after the KOSPI broke through the 3,900 mark. As of the 23rd, demand deposits had decreased by 20.1908 trillion won compared to the previous month, but in just a few days, the outflow nearly doubled. This contrasts with the previous month, when demand deposits had increased by 26.0154 trillion won.

The funds leaving the banks appear to be flowing into the stock market. According to the Korea Financial Investment Association, investor deposits reached a record high of 81.091 trillion won as of the 27th. After surpassing 80 trillion won for the first time ever on the 13th, investor deposits-funds waiting to be invested in the stock market-fluctuated but exceeded 81 trillion won on the 27th.

According to the Korea Exchange, the KOSPI index closed at 4,042.83 on the 27th, surpassing the 4,000 mark, and finished at 4,010.41 on the 28th. Comparing June 2 of this year, before the inauguration of the Lee Jaemyung administration, when the KOSPI stood at 2,698.97, to the 27th of this month (4,042.83), the index has risen by 49.79%. This is the highest growth rate among major global stock markets. The KOSDAQ index also surpassed the 900 mark for the first time in 1 year and 8 months.

A commercial bank official analyzed, "Due to the 10·15 measures announced this month, there was a rush to complete contracts to avoid new regulations, leading to a rapid decrease in balances. In addition, the recent sharp rise in the stock market seems to have accelerated the outflow of funds."

Another commercial bank official stated, "At the beginning of this month, the daily outflow of funds was less than 1 trillion won, but after the KOSPI broke through the 3,900 mark and expectations for the 4,000 mark grew, the daily outflow increased to about 2 trillion won. We are observing a significant movement of funds around the time the KOSPI hit 4,000."

In order to maintain their deposit base, commercial banks are quickly reflecting market interest rates and raising deposit and savings rates. The sharp decline in low-cost deposits has increased the burden of funding for banks. Hana Bank raised the maximum annual interest rate for its "Hana Regular Deposit" product from 2.55% to 2.60%. This product's maximum rate had dropped to 2.45% in July, then rose to 2.50% last month, and has been raised twice already this month. KakaoBank also raised the one-year maturity rates for both its regular deposit and free savings products by 0.10 percentage points in mid-October. The basic one-year rate for regular deposits is now 2.60%, and for free savings accounts, 2.80%. K-Bank increased the one-year maturity rate for its "Code K Regular Deposit" product from 2.50% to 2.55%. According to the Korea Federation of Banks, the highest one-year maturity rates for regular deposits at the five major commercial banks range from 2.55% to 2.60% per annum.