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| A signboard directs customers to the personal loan service section at a commercial bank in Seoul, in this photo taken in June 2021. Korea Times file |
By Yi Whan-woo
People who can afford to save money prefer to park their cash in bank deposit accounts these days rather than stashing them at home, in order to take advantage of a sharp increase in the key interest rate, according to Bank of Korea (BOK) data released on Tuesday.
The data showed the aggregate value of bank notes in circulation, excluding those that were deposited in banks and eventually returned to the BOK in 2022, fell to 174.86 trillion won. The amount includes cash kept at homes or used for shopping and other daily economic activities.
The 2022 figure was up 4.4 percent or 7.29 trillion won from 2021, which marked the lowest growth since 2004 when the rate stood at 1.6 percent.
By the face value of the bank notes, the 50,000 won bill accounted for 152.9 trillion won or 87.5 percent of the total amount.
The 10,000 won bill accounted for 16.3 trillion won, while 5,000 won bill was worth an aggregate 4.9 billion won.
"People's sentiment for risk aversion eased last year as the economy is on the path returning to normalcy and there was a decrease in tendencies to stash away cash in homes," the BOK said.
It also noted that the sentiment for risk aversion heightened in the pandemic era, and correspondingly, the amount of cash, excluding those saved at banks and removed from circulation, increased 17.4 percent year-on-year in 2020 and 13.6 percent in 2021.
"It can be said that more bank notes are being removed from circulation as commercial banks offer higher deposit rates than in the past and people are thus depositing money in banks," the central bank said.
The BOK delivered seven straight rate hikes between April 2022 and Jan. 13, 2023, raising the policy rate by a combined three percentage points to a 14-year high of 3.5 percent
Under the circumstances, the average deposit rate offered by commercial banks increased to 4.29 percent in November 2022, up from 1.57 percent a year earlier, according to the BOK.
The amount of bank deposits increased by 107.4 trillion won year-on-year to 2,243.5 trillion won in December 2022.
Meanwhile, the lenders have been pressured by financial regulators to drop their deposit rates as the excessive cash inflow was feared to cause a liquidity shortage among non-banking firms.
The lenders have also been pressured to reduce the gap between interest rates for loans and deposits, as such a disparity in interest rates results in huge interest margins for lenders, while borrowers struggle with repayments.
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