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A customer talks with a teller at Kookmin Bank, South Korea’s largest lender, in Seoul in January after the central bank raises interest rates South Koreans kept rushing back to seek safer assets with the balance of bank deposits, money market funds (MMFs) and cash management accounts (CMAs) up more than $48 billion in January.Investor sentiment quickly soured as more aggressive US monetary policy tightening than expected dampened global stocks and cryptocurrencies.“Money is moving out of risky assets to bank deposits as global monetary authorities speed up tightening,” said Hwang Sei-woon, senior researcher at Korea Capital Market Institute. “Investors may continue to prefer safe assets for the time being.”SAFETY IS TOP PRIORITYThe total deposits in the won currency at South Korea’s five largest lenders - Kookmin, Shinhan, Hana, Woori and NongHyup – stood at 1,788.6 trillion won ($1.5 trillion) as of the end-January, up 34.2 trillion won, or 1.9%, from the previous month, according to the industry sources on Sunday. The total deposits, which include time and demand deposits, as well as issuances of bank debentures, net issuances of certificates of deposit (CDs) and sales of repurchase agreements (RPs), usually rise or fall 1% on-month.In January, term deposits jumped 11.8 trillion won, while demand deposits soared 9.1 trillion won.South Koreans poured money into term deposits as predictions of a faster-than-expected US interest rate hike knocked down global stock markets and South Korean banks increased rates after the country’s monetary authority ramped up the base rate back to a pre-pandemic level last month.The balance of demanding deposits also surged, indicating more investors were reluctant to return to riskier assets such as stocks and cryptocurrencies, banking sources said.“Rising demand deposits mean financial customers avoid new investments while growing term deposits suggest more investors give up higher returns,” said a local bank source. Bithumb, one of South Korea’s major cryptocurrency exchanges, shows the trend of bitcoin prices in January Investors also parked more money in MMFs - financial products investing in short-term safe assets such as treasury bonds or corporate debts - and CMAs, a form of savings accounts. The balance of MMFs rose 22 trillion won to 158 trillion won in January and the one of CMAs grew 4 trillion won to 69 trillion won.SAVINGS BANKSTerm deposits of local savings banks attracted more customers as they provided higher interest rates by as much as 1 percentage point than major lenders with time deposits of the smaller institutions sold out right after launches.The balance of deposits of domestic savings banks surged 31% to 96.8 trillion won in November 2021 from a year earlier.“The recent weakness in stocks, cryptocurrencies, property markets spurred customers to flock into savings banks for higher returns from deposits,” said an industry source, adding growth in deposits at savings banks is faster than one in major lenders.But some savings banks cut interest rates for deposits since tighter household lending rules prevented them from expanding loans despite surging deposits.Saving banks will be unable to provide loans even as they accumulate money from deposits due to the regulations, sources said.“We need to make profits from interest rates of loans or investments, but it is hard to manage funds,” said another industry source. “The declining property market also made it tough to earn money from the project financing market.”By Dae-Hun Kim and In-Hyeok Leedaepun@hankyung.comJongwoo Cheon edited this article.
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