Korean investors turn to bank savings and bonds as interest rates go up

2022.05.06 15:14:58 | 2022.05.06 16:50:46

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Savings account deposits at Korean banks surged 65 percent on year in February as investors turn conservative amid growing uncertainties at market and economic front.

According to the Bank of Korea’s data, the balance of savings account at Korean banks for short-term deposit of six months or shorter stood at 130.5 trillion won ($102 billion) as of Feb 28, 2022, up 64.5 percent from a year earlier. The annual growth pace is the fastest ever, and sharp reversal from two consecutive years of decline – 8.5 percent on-year fall in 2020 and 0.1 percent in 2021.

The sharp gain in the savings account balance came in line with the capital ebb from the stock market. The daily turnover at the Kospi and Kosdaq averaged 17.7 trillion won last month, the lowest since February 2020.

Stricter loan regulations on top of rising interest rates have discouraged leveraged and risk-taking investments.

Household loans extended by local financial institutions fell 3.6 trillion won last month, while balance at savings banks rose 9.6 percent on year to reach 1,883 trillion won in February.

“More customers are putting their money into savings account for deposit of as short as one month as they do not know where to invest,” said Kim Hyung-lee, NH Nonghyup Bank official. The bank is recommending short-term savings account to customers as the interest rates are going up, he added.

Businesses also choose to shelve extra cash away instead of investing.

Business deposit at Korean banks reached 596 trillion won at the end of February, up 12.2 percent from a year earlier. The balance even hit record high of 613 trillion won at the end of 2021.

Rich individuals, meanwhile, are turning to high investment-grade corporate bonds for higher returns in line with rising interest rates.

Individual investors have net bought 1,207.9 trillion won worth of bonds this year up to May 4, according to the Korea Exchange. During the same period last year, retail investors had net sold 1,523.2 trillion won.

The growth has accelerated. Their net purchase amounted 23.2 trillion for the period from April 28 to May 5, up 31 percent from previous week and 275 percent from the same period a month earlier.

IPO had been the top choice for individual investment over the last two years but now the money is flowing into the bonds, said the banker. Returns are going higher amid rising interest rates.

Emart, rated AA0, issued 3-year debt last month with a coupon rate of 3.633 percent, the highest since February 2012. Hotel Shilla, rated AA-, sold 5-year debts at 4.17 percent, the highest since October 2011.

By Myung Ji-ye, Kang In-seon and Cho Jeehyun

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