The First Time Minus in Bank Deposits

As the actual interest rate falls to minus when considering the inflation rate, it is expected that this year, for the first time in history, bank deposits will decrease.

Most of the funds removed from banks have flocked to bond products but it appears that some have been invested in foreign stocks and bonds.

On December 19, according to such institutions as the Bank of Korea (BOK) and the Asset Management Association of Korea, up to December 13 the amount of money removed from banks amounts to 8.3 trillion won in deposits and 9.8 trillion won in trust cash funds.

From July, with the exception of September when banks competitively dealt with special deposits, there has been a monthly exit of over one trillion won in deposits.

This is the first year that the bank deposits have shown a minus on a yearly basis.

Bank deposits have increased by approximately 51.6 trillion won in 2002 and 30.7 trillion won last year.

The decreasing tendency of bank deposits is due to the minus actual interest rate, a result of the two-time decrease in the call rate among the economic stagnation by the Monetary Board of BOK.

Bank customers, unable to stand the ultra-low interest rate, are employing their capital in Benefit Bonds, which return profits based on actual performance, and Money Market Funds (MMF) of investment trust companies. This year MMF has increased by 23.3 trillion won and Benefit Bonds have increased by 20.7 trillion won.

The total trust funds of investment trust companies, by the standard of December 17, is approximately 184 trillion won, which has increased by 50 trillion won since last year’s end.

As uncertainties of policies such as the reversal of long-term interest rates of the United States and Korea and the redomination of the currency surface, foreign investments of individuals are increasing. It was summed up that this year 2.6 trillion won of domestic capital was invested in foreign stocks and 4.8 trillion won in foreign bonds.

Up to the end of November deposits in foreign currency have also increased by 5.5 trillion won.

BOK said, “If bank deposits decrease, problems concerning the supply of long-term capital for the production field can arise,” and that “If due to the rise in the interest rate, the capital from the investment trust companies flows out at once, confusion in the financial market is expected.”

Kang-Woon Lee kwoon90@donga.com