No Place to Go
According to the Bank of Korea, South Korean banks recorded a total deposit balance of 1,200.9007 trillion won (US$1.044 quadrillion) at the end of June this year, breaking the 1,200 trillion won mark for the first time in history. Household deposits totaled 573.2695 trillion won (US$498.49 billion) with a month-on-month increase of approximately four trillion won (US$3.48 billion) while enterprise deposits increased by about 17 trillion won (US$14.78 billion) to 357.8257 trillion won (US$311.15 billion).
Such a rapid increase in spite of a one-year time deposit interest rate of slightly over 1% is because of the lack of alternatives. These days, investment in high-risk assets is being shunned for reasons such as the possibility of interest rate hike in the United States, North Korean nuclear issues and industrial restructuring in China. In addition, the domestic housing market is in the face of concerns over excess supply and the government’s regulations on collective loans.
The corporate lending market, in particular, is in the state of stagnation as banks are reducing their loans for companies in preparation for the restructuring of major enterprises. Likewise, household loans are showing no signs of increasing as the financial authorities are moving to more strictly control household debts. In the investment banking sector, banks are refraining from an aggressive investment in the wake of Brexit.
In the meantime, some of the banks are using extreme caution in capital utilization for the BIS capital adequacy ratio. Major South Korean banks have to maintain a BIS capital adequacy ratio of at least 8.0% from 2019. At present, the figure is 8.8% for Woori Bank, 8.55% for the Industrial Bank of Korea, 13.93% for Kookmin Bank, 12.1% for Shinhan Bank and 13.31% for KEB Hana Bank.