Korean bank deposits jump, household loans fall as rates rise

Bank deposit totals jumped and household loans outstanding declined in October as the central bank continued to pursue a policy of tightening.

ATMs installed at a building in Seoul on June 7 [NEWS1]

Bank deposit totals jumped and household loans outstanding declined in October as the central bank continued to pursue a policy of tightening.

Time deposit totals at banks grew 56.2 trillion won ($40.9 billion) in October to 931.6 trillion won, the biggest jump since the data were first compiled in 2002, according to Bank of Korea data.

Outstanding household loans fell 600 billion won on month to 1,058.8 trillion won.

It was the first time outstanding household loans fell in an October. This year through October, the total outstanding household loans declined 1.8 trillion won.

The central bank has increased rates from a record low 0.50 percent to 3.00 percent in a little over a year.

Interest rates for time deposits at banks has reached 5 percent. At the same time, the Cost of Funds Index (Cofix), which is the reference rate for variable-rate mortgages, broke 3 percent in September to a decade high of 3.4 percent.

Outstanding corporate loans totaled 1,169.2 trillion won, up 13.7 trillion won from a month earlier.

Large companies were borrowing heavily from banks due to instability in the bond market, the central bank said in a statement.

Corporate bank loans by large companies increased 9.3 trillion won, while borrowings by the small-and-medium-sized companies rose 4.4 trillion won.

Net redemptions of corporate bonds continued due to the “bad conditions for the issuance caused by weak investor sentiment,” said the central bank.

Corporations redeemed 3.2 trillion-won of bonds in October, compared to 200 billion won in issuance in the same month a year earlier.

Missed bond payments by a company related to the developer of a Legoland Resort Korea weighed on the market raising uncertainties in the bond market, as did Heungkuk Life Insurance’s convention-defying announcement of a delay in the redemption of its perpetual bond on Nov. 1.

Total bonds issued in October shrunk 8.8 trillion won from a month earlier in October, said Korea Financial Investment Association in a statement Thursday. The reduction was led by corporate bonds and monetary stabilization bonds with a total outstanding of 2,598.7 trillion won.

“Yields for bonds rose as a result of the Monetary Policy Board’s ‘big step’ and the intensified strains in the short-term financing market,” the association said.

In October, foreign investors net purchased 1.3 trillion won in government bonds, down from 4.47 trillion-won in September. The net purchase of monetary stabilization bonds also slightly shrunk from 1.26 trillion won to 1.18 trillion won in the same period.

The balance for domestic bond holdings by foreigners rose 400 billion won to 231.38 trillion won last month, “stagnating for three months,” according to the association.

BY JIN MIN-JI [jin.minji@joongang.co.kr]