By Na Jeong-ju
Staff Reporter
Retail investors are showing signs of returning to bank deposits on steep stock market corrections and rising interest rates on savings.
Demand for bonds and certificates of deposit issued by banks to raise funds on short-term money markets is also picking up slowly, an encouraging sign for banks experiencing unusual fund shortage problems.
Analysts say it is too early to say whether banks will be able to find a breakthrough and raise enough funds for their businesses. The balance at securities firms' equity investment accounts is growing at a slower pace, but they still remain popular among retail investors, they say.
The outstanding deposit balance at the country's top four lenders ― Kookmin, Woori, Shinhan and Hana ― rose by 2.8 trillion won from the end of last year to 475.5 trillion won as of Jan. 21. In December, the balance shrank by 2.4 trillion won.
``The January figure shows more investors are drawing their money out of equity funds to save at banks on a fall in stock prices and the uncertain outlook for the bourse,'' a Kookmin official said. ``Banks will be able to improve their financial conditions sooner than they earlier anticipated if bond markets become stable and attract more investors.''
On Jan. 16, the interest rate on three-month certificates of deposit fell 0.01 percentage points, marking the first daily fall in three months. Two days later, the rate dropped another 0.01 percentage points to 5.87 percent.
The interest rate on three-year government-issued bonds, the benchmark for bond rates, decreased 0.09 percentage points to 5.36 percent on Jan. 18.
Banks have attracted more than 10 trillion won in new deposits since they raised savings rates in October. Some banks are selling special deposits carrying interest rates of more than 6 percent on a temporary basis. Some analysts caution, despite the rise in flows of fresh fund into banks, higher deposit rates may undermine their bottom lines and further weaken their profitability.
``While equity funds have seen their balance drop on a stock market correction, banks' time deposits, which guarantee higher interest rates than money market rates, have gained more popularity,'' an official of the Bank of Korea said. ``The rise in deposits reflects growing jitters on stock markets, and an increase in the number of investors who are having difficulty in making decisions on where to invest their money.''