Despite low rates, time deposits at banks rise sharply in October


The growing uncertainties in the global financial market has resulted in a sharp rise in Korea’s short-term capital seeking new investment channels, data showed on Monday.

The increased liquidity, which is yet to be invested in appropriate vehicles, comes together with a ballooning of time deposits at major banks despite low interest rates.

The twin growth of short-terms funds and outstanding term deposits underscores the dearth of good investment options following the outbreak of the eurozone debt crisis and the heightened fears of a U.S. economic downturn.

The local stock market has regained its lost ground in recent weeks, but the underlying sentiment remains skittish, vulnerable to bad news from the eurozone sovereign debt problem that is still ongoing.

The bond market and other investment channels are also seen as unappealing as the country’s economic outlook is fragile and the global market shows no sign of a full-fledged recovery.

According to the Bank of Korea and the Korea Financial Investment Association, short-term funds including cash, demand deposits, MMF, CD and RP reached 542.7 trillion won ($481.3 billion) as of the end of August. If savings with maturity of less than six month and customer deposits at brokerages are included, the combined figure stood at 643 trillion won, up 1.26 percent from July.

The volume of short-term capital was declining since December, but marked positive growth in August in response to the rapid deterioration of the financial markets at home and abroad.

The real estate market is also in the doldrums, offering no alternative exit for local investors.

For Korean investors, interest rates offered by commercial banks are low, with the central bank reluctant to raise the benchmark rate for fear of undercutting the country’s economic growth.

However, since there is no other alternative, time deposits rose at the fastest pace in October in one year.

The combined amount of outstanding term deposits at five local banks including Kookmin and Shinhan banks totaled 380.5 trillion won as of the end of October, up 6.6 trillion won from the previous month.

The October figure is the highest since the 9.6 trillion won gain last October.

The total amount of outstanding deposits at major banks soared 13.9 trillion won to 773.1 trillion won during the same period.

The rise of such deposits at banks suggests that customers are being forced to park their financial assets in term deposits despite low deposit rates as part of efforts to avoid risk amid growing concern about financial turmoil.

By Yang Sung-jin (insight@heraldcorp.com)