Money Moves to Capital Markets as Bank Deposits Slow; Gap Expected to Reach 360 Trillion Won This Year

South Korea's stock market boom is fueling a substantial "money move" from traditional bank savings to capital markets, with projections indicating a widening gap in net inflows between asset management firms and banks. This trend is expected to reach 360 trillion won this year.

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The movement of increasing market liquidity is expanding more towards asset management and securities rather than bank deposits.

Data shows a notable decline in net inflows into bank deposits, dropping from 105.5 trillion won in 2024 to 83.7 trillion won last year. Conversely, asset management firms have seen increased inflows, widening the gap to 157.5 trillion won last year. In the first quarter of this year, bank deposits saw net inflows of 21.1 trillion won, while asset management attracted 114.4 trillion won, more than five times that amount.

The shift is also evident in funds flowing into the stock market, including investor deposits and cash management accounts (CMAs), which exceeded bank deposit inflows in the first quarter. Stock-type funds have seen a significant increase, with their balance reaching 52 trillion won. The market capitalization of Exchange Traded Funds (ETFs) has also surged, growing fivefold since late 2021 to 360.7 trillion won by March, and has since surpassed 500 trillion won amid the recent market rally.

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Due to the relatively lowered interest rate attractiveness of regular deposits and the impact of the stock market surge, fund inflows into regular deposits have slowed.

This movement extends to retirement pension markets, where the proportion of Defined Benefit (DB) plans has decreased, while Defined Contribution (DC) and Individual Retirement Pension (IRP) plans have grown. Analysts attribute this trend to the declining attractiveness of regular deposit interest rates and the strong performance of the stock market. Banks are advised to consider strategies to attract corporate deposits as corporate earnings improve, as efforts to secure household deposits may face limitations.

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Banks will have limitations in their efforts to secure household deposits. As corporate deposit increases are expected due to improved corporate earnings, there is a need to consider strategies for expanding corporate deposits.