By Kang Seung-woo
Staff reporter
Amid a roller-coaster ride in the stock markets and a deflated asset bubble, the banking industry is seeing a high rise in time deposits which offer the safety of banks with a relatively high interest rate. Also factoring in the picture is the active pursuit of deposits by banks, being under the pressure of regulators.
The banking industry said Sunday that the total amount of time deposits in the six local lenders reached 356.65 trillion won ($290.31 billion) as of the end of last month, up 59.71 trillion won, or 20.1 percent, from the end of 2009.
The six banks are Kookmin, Shinhan, Woori, Hana, Industry Bank of Korea (IBK) and Korea Exchange Bank (KEB). The average interest rate for one-year maturity time deposits is set at 3.77 percent.
In contrast, funds linked with stocks suffered a 716.5 billion won decrease in the January-to-June span.
According to the Korea Financial Investment Association (KOFIA), equity funds lost 10.43 trillion won in subscriptions in the first half of the year.
"Uncertainty has been growing. As a result, investors have avoided risky assets," said Kwon Soon-woo, chief analyst at Samsung Economic Research Institute.
Europe's debt fiasco, coming on top of North Korea's surprise torpedo attack, were negative impacts on the Korean economy, sending foreign investors scrambling for the exit.
The flight to the safety of banks is also related to the depressed property market. The real-estate market in Seoul has been declining for 19 straight weeks since late February.
In addition, the financial authorities' drive to control the loan-to-deposit ratio above 100 percent since late last year is also forcing the banks to lure more customers.
"The growth of time deposits at banks is due to their offensive marketing strategies to sell the high-interest deposits in order to contain the loan-to-deposit ratio," a bank official said.
Kookmin, the nation's largest bank by assets, saw its fixed deposits surpass 100 trillion won to reach 101.60 trillion won, up 21.73 trillion won from six months earlier, while KEB posted an nearly 50-percent increase or 8.94 trillion won.
The six local lenders' "demand deposit accounts," which carry an almost zero interest rate, also saw an increase of 2.8 percent from six months ago, as they increased by 4.94 trillion won to 180.77 trillion won.
Market analysts believe that the trend will continue, but the increase rate for the second half of the year will be slower because of a lack of new investments.
"Due to lingering uncertain factors, banks are likely to see an influx of capital in the second half, but they will not be as big as before because their loan-to-deposit ratio nearly reach the recommended level," the official said.