Time Deposits Rebound After Three Months as Rate Hikes and Demand for Safe Assets Drive Funds Back

Time Deposit Balances Increase by 7.5 Trillion Won in One Month
Deposit Rate Hikes and Demand for Safe Assets Drive Uptick
Major Banks Raise Interest Rates by Up to 0.15 Percentage Points

Time deposits, which had been shunned by financial consumers due to the ongoing money movement driven by the stock market boom and interest rates lingering in the mid-2% range, have rebounded after three months. This turnaround is attributed to banks simultaneously raising deposit rates in response to the rise in market interest rates, as well as increased demand from companies looking to prioritize placing their boosted profits—driven by the semiconductor boom—into safe assets.

According to the financial sector on June 2, the combined balance of time deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Bank) stood at 944.7161 trillion won as of the end of May, up by 7.5327 trillion won compared to the previous month. This marks the first increase in three months, following a cumulative outflow of approximately 9.7 trillion won in March and April. Since the outflow of 32.7 trillion won in December last year, the balance of time deposits had been on a continuous decline, except for February this year.

The rebound in time deposit balances is interpreted as a reflection of demand returning to safe assets, even in the midst of funds flowing into the stock market. A commercial bank official stated, "We have confirmed a demand to prioritize placing stock market-linked profits and increased corporate earnings into safe assets." In fact, corporate time deposit balances increased by 8.8 trillion won over the past month, leading the overall growth in time deposits.

The simultaneous increase in time deposit rates by banks in May also played a role in retaining deposits. The five major commercial banks raised their deposit rates, starting with Hana Bank on May 11, followed by KB Kookmin and Woori Bank on May 18–19, and Shinhan Bank on May 28, with increases of up to 0.15 percentage points. As a result, the maximum rate for 6-month maturities has reached 2.85%, and for 12-month maturities, up to 2.90%.

A commercial bank official explained, "We raised some time deposit rates in response to the rising market interest rates, which have increased the burden of raising funds through bank bonds," adding, "Aligning the rate levels with other banks to prevent capital outflows was also a reason for the simultaneous rate hikes."

According to the Korea Financial Investment Association, the yield on 1-year bank bonds, which stood at 3.179% as of early last month, climbed to 3.477% by June 1. The market has factored in this increase, as the Bank of Korea kept the base rate unchanged in May but signaled a possible hike within the year. When bank bond yields rise, lending rates immediately follow, widening the net interest margin (the gap between deposit and loan interest rates); however, the cost burden of raising funds through bond issuance also increases.

A financial industry insider commented, "As the trend of rising market interest rates is expected to continue for the time being, efforts to secure stable deposits will intensify to manage net interest margins and reduce funding burdens." The source added, "Rather than letting the increased surplus funds remain in demand deposits or other short-term accounts, competition among banks to attract funds into time deposits through higher interest rates is expected to become even fiercer."

This content was produced with the assistance of AI translation services.