Financial assets will stall after 2028

Financial assets will continue to grow until 2028 due to the growing proportion of those in their 50s, a prime age group with high net wealth, according to a report by the central bank on Thursday.

The report explored the effect of Korea’s aging demographic on financial products and the industry.

The Bank of Korea said that the number of householders aged between 55 and 59 will increase until 2028, propelling the growth of financial assets.

But after 2028, financial assets will shrink as people over the age of 70 will start to take up a large slice of the population.

“If the demographic of those over 75 keeps increasing for an extended period of time, financial institutions will find it hard to continue growth,” said Yoon Kyung-soo, a senior manager of the Financial Stability Department at the bank.

Even if the asset size keeps growing until 2028, the growth rate is far from substantial - at an annual average of 0.5 percent.

The tepid growth stems from older people’s propensity to obtain real assets such as real estate over financial assets.

“The older the age, the larger the portion of real assets is, a different trend from the United States, Europe and Japan,” the report said.

“Unless the investment trend changes, dependence on real assets will intensify,” it noted.

The Bank of Korea said that real assets account for 82 percent of assets on average for those over 60 in a survey in 2016.

The country’s aging population will also push up the demand for insurance and pension-related products as the options help people manage assets in the long term.

Besides the older age group, households in general also increased the asset portion of insurance and pension products. In 2008 the share stood at 24.3 percent, but the figure jumped to 31.8 percent in 2016.

On the other hand, banking and financial units will experience lower loan-deposit margins and return ratio of insurance and pension products as the era of sluggish growth and low interest rates is expected to continue.

The central bank recently has released research on the economic impact of Korea’s aging society as the country’s population of people over 65 is one of the fastest growing in the world. In the previous study, it predicted that the aging population will push down real economic growth to as low as 0.4 percent in ten years from the current level of 3.9 percent.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]