Short-term Funds Reach 390 Trillion Won

Deposit balances of short-term funds are rapidly rising with the heightened uncertainties due to the diminished gap between the long- and short-term interest rates and the SK Global accounting scandal.

Accordingly, companies are having trouble raising long-term investment funds and the vulnerability of the financial system is becoming more serious.

The Bank of Korea said Tuesday that as of the end of March the short-term funds whose maturity is less than six months including customers` deposits in securities firms soared to 387 trillion won, up 7 trillion won from February`s 380 trillion won and up 9 trillion won from 378 trillion won late last year.

The short-term deposits except for customers` deposits (based on the monthly average balances) rose to 372 trillion won at the end of February and 376 trillion won at the end of March from 370 trillion won at the end of last year.

Customers` deposits increased to 11 trillion won at the end of March from 8.1 trillion won at the end of last year.

Short-term funds cover deposits at banks and non-bank financial institutions whose maturity is less than six months, MMDA (Money Market Deposit Account), MMF (Money Market Fund), and customer deposits at securities companies.

The increase in the short-term funds is attributed to the rise in deposits whose maturity is less than six months, MMDA, and customers` deposits in securities companies.

The financial circle has predicted the phenomenon because, despite the abated uncertainties over the prolonged Iraqi war, the North Korea`s nuclear threat and the problem of credit-card companies are unresolved and the economic downturn at home and abroad is worsening.

“The interest rate of deposits whose maturity is less than a year is 4.5% and that of MMFs less than a month is 4.1%, making no difference between the long- and short-term interest rates,” said an official of the BOK.

“Due to the short-term funds, risks of mismatching (unbalanced supply and demand of funds) are rising and the financial institutions are reluctant to lend long-term funds,” the official said. “Decreased long-term investment of companies can reduce the potential of growth,” he expressed concern.

In particular, if the financial market becomes uncertain, a great amount of funds can shake the whole financial system, the BOK pointed out.

The nation`s central bank predicted that funds will be increasingly short-term for the time being since diminishing the gap between long- and short-term interest rates is hard to achieve and the market uncertainties will remain unresolved for some time.

Kwu-Jin Lim mhjh22@donga.com