By Park Hyong-ki
Staff Reporter
The outstanding balance of cash management accounts (CMAs) at securities companies reached 19.4 trillion won as of the end of June, a thirteen fold increase from nearly eighteen months ago.
The number of accounts also grew about six times to 2.93 million from 490,000, according to the Financial Supervisory Service (FSS).
CMAs have been popular among salaried workers as they can receive their salaries and make stock investments through the accounts that also offer interest rates higher than those at banks. CMA interest rates range between 3.5 percent to 4.5 percent, far higher than the less than 1 percent offered by banks for their short-term demand deposit accounts.
Growing demand for CMAs also reflects aggressive marketing and other benefits provided by brokerage houses.
Individual accountholders accounted for 95 percent of the CMA balance with 18.4 trillion won, with corporations holding the remainder.
Regulators and brokerage houses expect a growing number of individuals to shift their money to CMAs from bank deposit accounts.
``We expect the number of accounts to rise further when the Capital Market Consolidation Act goes into effect in 2009,'' said Rhee Myong-ho, a director at the Financial Supervisory Commission (FSC). The capital market bill will allow brokerage houses to provide cash transactions and other payment & clearings services
Currently, CMA accountholders are able to settle and clear payments such payment of card bills and money transfers indirectly via accounts of other partner banks.
However, the capital integration act will allow stock accountholders to pay bills, transfer money and do other basic cash transactions directly with the accounts.
Securities companies are able to provide higher interest rates to CMA holders as they invest the pool of money from CMAs in short-term investment instruments.
Banks initially opposed granting payment and clearings services to brokerage houses. But with the passage of the bill at the National Assembly early this month, brokerage houses will provide basic banking services from 2009.
``The banks' primary concern is that more and more customers will shift their money to CMAs,'' said Rhee of the FSC.
Demand deposit accounts are primary low-cost sources for their loans to individuals and companies. Currently, banks are offering an annual rate of 0.1 to 0.5 percent on demand deposits.
Kookmin Bank and other lenders are introducing various deposit products and upgrading services to contain a further exodus of money to stock accounts.
The regulatory body warned that brokerage houses should make sure that their competition will not hurt the soundness of their finances.
``We are going to draw up guidelines in the near future on CMA businesses to help protect investors and maintain the soundness of brokerage houses,'' the FSS said.