Money flows to banks in Korea amid faster tightening

[Graphics by Song Ji-yoon]

South Koreans are turning to banks amid growing risk aversion mood in rising interest rate environment and economic uncertainties.

The outstanding balance at Korea¡¯s five major banks KB, Shinhan, Hana, Woori, and NH hit 732.48 trillion won ($552 billion) as of Wednesday, adding 9.92 trillion won from 722.56 trillion won two weeks ago.

Investors have been exiting from securities and crypto markets amid faster tightening in the U.S. and anticipation for matching move from the Korean central bank.

Bank of Korea (BOK) indeed on Wednesday raised the base interest rate by unprecedented 50 basis points to 2.25 percent.

According to the Korea Financial Investment Association, funds deposited for stock investment contracted by over 2 trillion won to 55.2 trillion won on Wednesday from 57.4 trillion won at the end of last month. Money flew to stock and cryptocurrency markets until the first half of last year, but the flow has reversed to safer assets as the base rate has gained 1.75 percentage points in less than a year.

[Graphics by Jenny Lee and Song Ji-yoon]

Banks are vying to draw retailers to ride on rising interest rate environment. Hana Bank on Wednesday announced it will raise the rate of its 30 deposit and saving products by up to 0.9 percentage point. Woori Bank offers up to 0.8 percentage point raises in the interest rate for 46 products.

Korea¡¯s commercial banks usually raise their rates within a week after a rate hike by the central bank.

Amid BOK¡¯s aggressive tightening move, capital flight from stocks and other risky assets will likely accelerate. In response, smaller savings banks will likely offer savings rate in 4 percent to attract big money.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]