Banks See Massive Exodus of Deposits
By Na Jeong-ju
Staff Reporter
Even after fierce competition to sell various promotional deposits with abnormally high interest rates for attraction of more customers, banks found that even these costly deposit products are not attracting as many customers as they hoped.
Banks have unveiled temporary deposit products that carry interest rates of more than 6 percent of late, a move to lure back retail customers whom they lost to short-term cash management accounts (CMAs) at securities companies. A lot of retail customers, once loyal to banks, are now showing a greater interest in various investment products and in the process are shifting their money to mutual funds.
Banks have suffered extreme fund shortages due to falls in flows of money into their deposit accounts. Retail investors, especially average wage earners, want accounts enabling them to invest in stocks and funds and CMAs are the right product that satisfies their needs. The free-style CMAs provide interest rates of about 5 percent and allow accountholders to deposit and withdraw money in and out of accounts easily.
While securities companies are seeing CMAs steadily rise and banks are seeing flows of fresh money into their ordinary, low-cost deposit accounts stalled. Four major banks ― Kookmin, Shinhan, Woori, Hana ― saw the combined amount of low-cost accounts increase by 288 billion won from the end of September to 97.8 trillion won as of Dec. 21, according to the banks.
Low-cost deposits include demand deposits and other low-interest rate deposits that are core sources for banks' lending operations. These low-cost deposit accounts have steadily fallen from 104.6 trillion won at the end of 2006.
Woori Bank, Hana Bank and Industrial Bank of Korea have recently developed aggressive deposit accounts with fairly high interest rates, but their achievements are far from satisfactory. For instance, Woori's short-term investment-type AMA deposit accounts have attracted about 180 billion won over two months since their launch.
The data shows that despite banks' special promotional deposit accounts, flows of fresh money into bank deposit accounts.
Time deposit accounts are not much different. They competed to sell time deposits with interest rates of more than 6 percent. But the outstanding amount of time deposits fell to 189 trillion won as of Dec. 21, down 619 billion won from the end of November.
In November, they saw the combined time deposit accounts rise 8 trillion won. But the fall in December shows that promotional deposit products have little effect on boosting bank deposits.
``It looks like we can not reverse the shift of money into the stock market. What we can do is to slow the shift and develop new products to more efficiently compete with CMA accounts,'' a Shinhan Bank official said.
Kookmin saw its time deposits rise to 60.8 trillion won as of Dec. 21 from 6.4 trillion won from the end of November. Woori's time deposits fell to 51.2 trillion won from 52.6 trillion won.