Koreans flock to banks in fastest pace amid unprecedentedly strong tightening cycle

[Photo by Park Hyung-ki]

South Korean investors are decisively withdrawing from the securities and property market to park their money in safer time deposits and installment savings as rates jump to 4 to 5 percent level versus sub-1 percent a year ago.

According to data released by the Bank of Korea on Thursday, the outstanding balance in bank accounts reached 2,245.4 trillion won ($1.57 trillion) as of the end of September, surging 36.4 trillion won from a month ago. It was the biggest growth per month since related data started being compiled in January 2002.

As much as 32.5 trillion won was put in time deposits that pay higher than demand deposit, while 3.3 trillion won was withdrawn from money market deposits.

¡°We are seeing a flurry of account openings since we offer deposit rate in 4 percent level. The trend would accelerate if the returns go above 5 percent,¡± said an official from a commercial bank.

Money in contrast is quickly ebbing from asset management companies amid slump in stock and property markets. The balance in their financial products shriveled 12.4 trillion won in September alone – 10.9 trillion won from money market funds and 3.1 trillion won from bond funds.

Household debt growth slowed down in line with soaring rates. According to data released by the Financial Services Commission and the Financial Supervisory Service on the same day, household lending by banks and non-banks fell 1.3 trillion won last month.

Mortgage-backed loans rose 2 trillion won, smaller than the 2.7 trillion won gain in August. Other loans including credit loans decreased 3.3 trillion won.

Companies are increasingly turning to banks for financing instead of corporate debt issues. The outstanding bank loans to companies stood at 1,155.5 trillion won as of the end of September, up 9.4 trillion won from a month ago. It marked the biggest addition since June 2009.

Lending to small- and mid-sized companies also rose 4.7 trillion won, and conglomerates 4.7 trillion won.

Foreigners have exited from Korean bourses amid faster monetary tightening from the U.S. and weakening Korean currency. According to data released by the BOK on Thursday, offshore investors exhibited a net outflow of $2.29 billion in the Korean financial markets - $1.65 billion in the stock market and $640 million in the debt market.

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