South Korean banks are facing a significant shift in deposit patterns as the volume of demand deposits – a key source of low-cost funding – has fallen below 30% of total deposits, according to data released this week.
The decline, which saw demand deposits account for 29.77% of the 1,799.4645 trillion won (approximately $1.37 trillion) held by the four major commercial banks – KB Kookmin, Shinhan, Hana, and Woori – as of February 6th, reflects a broader trend of funds moving out of traditional savings accounts and into higher-yield investments, particularly the stock market. This marks a substantial drop from the over 40% share demand deposits held after the onset of the COVID-19 pandemic.
The outflow is attributed to both a surging stock market, with the KOSPI exceeding 5,300 points, and the increasing popularity of Comprehensive Asset Management Accounts (IMA), which offer a wider range of investment options. According to a report by Korea Credit Rating, the potential legalization of a won-denominated stablecoin could accelerate this trend, potentially draining an estimated 244.7 trillion won from demand deposits over the next decade.
January saw a particularly sharp decrease in demand deposits, with the five major banks experiencing a combined reduction of 22.5 trillion won, the largest monthly drop in a year and a half. This coincided with a 1.4 trillion won decrease in mortgage loans, the first decline in nearly two years, as rising interest rates and tighter regulations dampened housing demand.
“We’ve long been unconcerned about securing deposits, but now is the time to start worrying,” stated a senior official from one of the four major financial groups, speaking on condition of anonymity. The shift in deposit patterns is prompting banks to explore new strategies to attract and retain funds, including the development of “super savings accounts” offering more competitive interest rates and benefits.
The outflow from demand deposits is occurring as investors increasingly favor the stock market. As of late January, total investor deposits in securities firms had surpassed 110 trillion won. This movement of funds from banks to the stock market is viewed by some as a positive development, channeling capital into productive investments and potentially boosting economic growth. However, concerns are being raised about the speed and scale of the shift, with some analysts warning against an overly rapid flow of funds from the stability of bank deposits into the potentially more volatile stock market. The 5-day moving average of demand deposits fell by 22.5 trillion won in January, the largest drop since July 2024.
