Banks in South Korea are scrambling to raise deposit rates and launch new products that combine savings with securities in an effort to prevent a growing outflow of client funds to stockbrokerages. This comes in response to the ongoing KOSPI rally, which has prompted a “rapid movement of funds” from the banking sector into the stock market, industry officials reported on Thursday.
As of Wednesday, demand deposit balances at the country’s five major banks — KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup — had dropped to 614.9 trillion won ($419 billion), a decline of 33.4 trillion won since the end of September and 12.6 trillion won from the end of October. Daily withdrawals this month have averaged 1.14 trillion won.
This significant drop in demand deposits, which are typically idle funds, is largely attributed to the surging stock market, with the KOSPI index rising more than 20 percent in just over a month. The rally has drawn substantial liquidity away from banks and into the equity market, prompting action from the banking sector to retain customer funds.
In response, banks have been raising their deposit rates, despite the Bank of Korea maintaining its base rate at 2.5 percent since May. On Wednesday, KB Kookmin Bank raised the interest rate on its one-year time deposit from 2.65 percent to 2.7 percent. Shinhan Bank followed suit, increasing its rate for the same term from 2.65 percent to 2.75 percent. Hana Bank also lifted its one-year deposit rate by 0.05 percentage points to 2.7 percent, while Woori Bank increased its rate from 2.65 percent to 2.75 percent. NH NongHyup Bank also adjusted the rate on its primary deposit product, increasing it from 2.65 percent to 2.7 percent.
In addition to raising deposit rates, banks are rolling out new products that blend banking with securities in a bid to retain their customers. Hana Bank, for example, recently launched a unified account that combines a deposit account with a brokerage account. This product allows customers to invest in both domestic and global stocks directly from their bank balance, without needing to make separate transfers to a brokerage.
“The new product, developed in partnership with Hana Securities, offers a comprehensive solution that combines payroll management with investment capabilities in one account,” said a Hana Bank official.
Internet-only banks have also joined the trend, with KakaoBank introducing a 26-week savings product in collaboration with Kiwoom Securities. This product offers stock trading incentives to customers who make regular weekly deposits. Customers who complete automatic weekly transfers for 26 consecutive weeks can earn stock trading support funds and other rewards.
Earlier, KakaoBank had made it easier for customers to access Kiwoom Securities’ investment products by allowing account openings directly through its mobile app.
“Banks are cautiously raising deposit rates while closely monitoring the moves of their competitors, as the stock market rally raises the risk of fund outflows and potential customer attrition,” said a banking industry official. “We expect lenders to continue rolling out hybrid products that combine deposits with securities in an effort to retain client funds.”