Big corporations who want to deposit their excessive cash are in conflict with banks who don’t want too much money.
According to the financial sector on July 24, corporate deposits in Hana Bank and Korea Exchange Bank rose by 5.3 trillion won (11.1 percent, US$5.2 billion) and 4.3 trillion won (12.6 percent, US$4.2 billion), respectively, to 53.2 trillion won (US$51.7 billion) and 38.3 trillion won (US$37.2 billion) at the end of last month, relative to two years ago. During the same period, corporate deposits in Woori Bank increased by 7.2 trillion won (9.0 percent, US$7.0 billion) to 86.8 trillion won (US$84.4 billion), and in Shinhan Bank by 6.4 trillion won (8.8 percent, US$6.2 billion) to 79.3 trillion won (US$77.1 billion).
The balance of corporate deposits in six major banks including Kookmin Bank (73 trillion won, US$76.7 billion) and the Industrial Bank of Korea (45.1 trillion won, US$43.8 billion) is 375.7 trillion won (US$366.1 billion).
Corporate deposits in banks are the extra funds of companies. They could deposit funds right before a big payment or investment, but usually they deposit excessive cash.
Standard Chartered (SC) Bank Korea analyzed that the excessive cash flow of 100 major companies in Korea is 120 trillion won. This is 10 percent of the gross domestic product (GDP) last year.
Woori Bank denied taking corporate deposits from one community bank who asked for a 2.5 percent yield per annum for multi-million amounts of won. An executive at Woori Bank explained, “We denied such a request, as this will be adverse parity funds. We only accept companies that we have business relationships with.”
Situations are similar in other banks, according to this executive. If funds for deposit are too much, banks want to pass the corporate deposit requests to their competitors or simply deny them.
This executive said, “If we hand over short-term corporate deposits to call loans or repurchase agreements, we suffer from adverse parity. Even for long term deposits, there is no demand for loans probably, because companies do not invest these days.”
The sales and treasury department inside banks often conflict with each other because of corporate deposits. The sales department accepts corporate deposits as companies are their clients. However, the treasury department, which actually needs to manage the deposited funds, nixes the idea.
Multi-billion won deposits come and go as per a 0.1 percent point interest rate, in case of big corporate deposits. Big corporations diversify their excessive cash to banks, insurance companies, and securities companies, and negotiate interest rates.
This is why treasury department leaders of big corporations with multi-billion won funds such as Samsung Electronics and Hyundai Motors are superpowers to banks.
A branch manager overseeing big corporations said, “I barely made a lunch appointment with a treasury team leader of a big corporation, and did not hear back about a golfing appointment yet.”
Companies, though, claim that they cannot spend money, not that they do not want to. An anonymous executive at the strategy department of a big corporation said, “Although millions of new investment plans have piled up, they are all postponed. We have more urgent issues such as various regulations and conflicts with labor unions.”
As money becomes tied up into various savings accounts of companies, the amount of money actually circulating in the market is shrinking, no matter how much the Bank of Korea (BOK) attempts to lower the interest rate and release money. The currency multiplier (seasonal effects modified) calculated based on the statistics of the BOK was 19.4 last May, the lowest figure since records have been kept from December 2011.
The currency multiplier shows how well money released from the central bank is circulated. The lower the currency multiplier is, the lower the economic activity is. Kang Byung-goo, a professor at Inha University's Economics Department, pointed out, “Since shares of waged employees have not been distributed fairly in the market, only corporate deposits, not household income, increased.”