Bank Loans Will Lose Momentum
By Na Jeong-ju
Staff Reporter
South Koreans will increase their investment in securities over the coming years, while banks' core deposits will decrease steadily, according to bank presidents Friday.
In a statement released after a monthly meeting in the morning between Bank of Korea (BOK) Governor Lee Seong-tae and bank CEOs, the central bank said the funds' shift from banks' core deposit accounts to securities firms' stock investment accounts will continue.
``Given lower stock holding by South Korean households than those of economically advanced nations, South Korea will see a steady rise in individuals' equity investments,'' the statement said.
Participants of the meeting include Woori Bank President Park Hae-choon, Shinhan Bank President Shin Sang-hoon, Korea Exchange Bank President Richard Wacker and Citibank Korea President Ha Yung-ku.
During the meeting, the CEOs exchanged views on ongoing financial issues, including interest rate rises, household debt and worsening profitability in financial firms.
They forecast bank loans to households and companies will lose momentum next year as banks will find it more difficult to raise funds for the loans.
``It will be more difficult for banks to raise funds by issuing bonds and certificates of deposit next year. Bank loans will also grow at a slower pace,'' the BOK said.
Banks are suffering an extreme fund shortage as they are having difficulty attracting funds to accounts that offer lower interest rates than securities firms.
They have raised deposit rates for consumers to prevent the outflow of funds from deposit accounts to securities firms' stock investment accounts.
``Most banks are suffering an erosion of deposits, which are essential for them to maintain profitability,'' a BOK official said. ``The erosion of core deposits has weakened their growth potential and raised their fund-raising costs.''
Analysts forecast banks will see their earnings fall sharply in the second half, reflecting rising fund-raising costs and falling commission incomes from credit card use and fund sales.
Despite a fall in deposits, banks have increased loans.
As of Nov. 22, the country's six largest lenders ― Kookmin, Woori, Shinhan, Hana, Korea Exchange and Industrial Bank of Korea ― had 163.7 trillion won in outstanding mortgages, up 1.06 trillion won from a month ago.