By Na Jeong-ju
Staff Reporter
The balance at brokerage firms' cash management accounts (CMAs) has topped 20 trillion won for the first time since the service's debut in late 2004 as more investors have shifted their funds from banks' deposit accounts to CMAs in pursuit of higher interest gains.
As of the end of July, the balance at CMAs came at 21.1 trillion won, up 140 percent from 8.6 trillion won at the end of last year, according to the Korea Securities Dealers Association (KSDA). The number of CMA accounts also rose 125 percent to 3.25 million during the same period.
The CMAs have gained growing popularity in recent months as people increased their investment in stocks amid a stock market rally and low interest rates for bank deposits. The CMA balance has grown 13-fold since the end of 2005.
Analysts forecast the CMA balance to surpass 30 trillion won by the end of the year with the number of CMA accounts increasing to 4.5 million, if their growth continues at the current pace. The envisioned Capital Market Consolidation Act, scheduled to take effect in early 2009, will also largely benefit the securities industry and help them develop better CMA-related services, they said.
Tongyang Investment Bank has attracted the largest amount of funds through CMAs with 5.1 trillion won, followed by Korea Investment & Securities with 2.7 trillion won, Woori Investment & Securities with 2.1 trillion won, Hyundai Securities with 1.9 trillion won and Samsung Securities with 1.9 trillion won, the KSDA said.
Banks have raised deposit rates and introduced more Internet-based accounts to compete better with securities firms, but the funds' shift toward CMAs has shown few signs of abatement. Brokerage firms have joined hands with credit card issuers to provide better CMA-related services.
``Once the government implements the Capital Market Consolidation Act, securities firms will be able to provide basic banking services through CMAs,'' said Lee Jung-soo, a director at the KSDA. ``Customers will be able to send or withdraw money through CMAs freely beginning 2009. It will pose a threat to banks, but will ensure more business opportunities for securities firms.''
In contrast to the rapid growth of the CMA investment, banks have seen their deposits erode substantially. The portion of deposits at banks in people's financial assets fell below 50 percent for the first time in 2006 as depositors have turned to more investment-oriented, risk-weighed asset management, according to the Bank of Korea.
The gap between banks' deposit rates and lending rates narrowed to their lowest level in July as banks raised interest rates on savings accounts to attract more deposits, the central bank said.
Most banks are now suffering an erosion of deposits, which are essential for them to maintain profitability. Analysts say the erosion of core deposits will weaken banks' growth potential if they don't come up with more attractive financial services.