Households shift savings from banks to other assets

The percentage of household savings held by local banks fell to the lowest level since 1975 in the first half of the year. Low interest rates pushed household cash to real estate and stocks, central bank data says.

According to the Bank of Korea (BOK) on Sunday, household savings made up 45.4 percent of all deposits in the first half, a 1.2 percentage-point dip from a year earlier. At the same time, deposits by businesses have been on the rise.

In the six-month period, total household deposits reached 614.93 trillion won ($542.74 billion), an increase of 4.2 percent from the year before. Total deposits held by local lenders stood at 1,353.51 trillion won for a gain of 6.8 percent.

The BOK said household savings accounted for over 60 percent of all deposits in the late 1990s, but the proportion has steadily decreased and has more or less stayed under 50 percent in recent years with the exception of 2014. “The decrease is mainly due to people using their money to invest in other areas amid low interest rates offered by local lenders,” a market watcher said.

He pointed out that the purchase of shares and money sent to investment funds by households reached 11.4 trillion won in the second quarter, up from 3.6 trillion won in the first quarter, with their combined bank balance dropping off correspondingly.

In contrast, the size of the deposit balances owned by businesses reached 403.72 trillion won in the January-June period, up a sharp 7.9 percent from the previous year. The ratio of such deposits to all savings stood at 29.8, up 0.3 percentage point.

BOK data showed that from the second half of 2015, growth in savings by businesses consistently outpaced that of households, an indication that companies preferred safety rather than investments in riskier sectors.

“After experiencing the Asian financial crisis, Korean businesses have become conservative in the way they manage their cash holdings, while the development of the capital market has caused households to look elsewhere than banks to make extra money,” said Hong Joon-pyo, a senior analyst at the Hyundai Research Institute.

Yonhap