Banks losing longer-term depositors

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Banks losing longer-term depositors

As the central bank continues to prop up the economy through loose monetary policy, many investors are reluctant to keep their money in banks because of the low interest return.

According to the Bank of Korea Friday, the ratio of short-term deposits with maturities of less than a year has risen to its highest level in five years.

As of the end of November, short-term deposits amounted to 157.8 trillion won ($143.9 billion) at banks, 27 percent of 584.7 trillion won in bank deposits.

The last time that short-term deposits accounted for such a proportion was in December 2010, when they accounted for 27.3 percent. In fact, short-term deposits accounted for only 22.9 percent of the total at the end of 2012 as the interest rate at the time was in the 3 percent range. Today, interest on new deposits is at a new low of 2 percent.

As a result, bank deposits with maturities of more than a year but less than two years now stand at 66.8 percent of the total. That’s a drop from 71.2 percent at the end of 2012.

The trend is expected to continue for the time being, especially with growing speculation that the central bank could be seeking another drop in the key interest rate in the first half of the year.

In the second half of last year, the BOK cut the key interest rate twice to help the central government’s moves to bolster the struggling economy.

The first interest rate cut was made in August and the second in October. In both situations, the central bank dropped the key borrowing rate by 0.25 percentage points until it reached its all-time low of 2 percent.

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