Bank deposits on rise despite record low interest rates

Bank deposits on rise despite record low interest rates

Deposits at South Korea’s major commercial banks grew at a fast clip last week despite significant cuts in interest rates paid by local banks following a rate cut by the central bank, market data showed Sunday.

Outstanding deposits held by the country’s five major lenders gained over 10 trillion won ($8.52 billion) in just one week after the Bank of Korea slashed its key interest rate to a record low of 1.25 percent on June 9, according to the data.

Following the rate cut, some local banks have reduced their own interest rates on deposits to as low as 0.1 percent, offering de facto negative yields on deposits when considering the steeper increase in consumer prices.

Initially, the banks were expected to suffer a further drop in their deposits after an earlier report showed deposits held at nonbank financial institutions, such as savings banks and asset management firms, had reached over 2,000 trillion won as of end-April.

As of Thursday, deposits held at the five commercial banks stood at 983.63 trillion won, up 10.4 trillion won from a week earlier.

The five banks are Kookmin, Shinhan, Woori, KEB Hana and Nonghyup.

Market experts said the continued rise in bank deposits despite record low interest rates was apparently caused by people’s fear of a further decline in economic conditions.

“As companies and people continue to face difficulties in finding safe investment opportunities, they seem to prefer keeping their liquidity in hand,” Hana Financial Institute analyst Jeong Hee-soo said. “Short-term and long-term deposits and people’s preference for safe assets may continue to rise for some time as long as uncertainties in the global market persist.”


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