Deposit funds rush to foreign banks

The Bank of Korea reported that foreign bank branches in Korea saw their combined deposits increase by 1.5 trillion won during the first 10 months of this year, which is 900 billion won greater than the increase for the whole year of 1999.

At the end of last year, foreign bank deposits stood at 2.8 trillion won, but the figure soared to 4.3 trillion won at the end of October, showing an increase of 54 percent. As a result, foreign banks constituted 1.2 percent of total domestic deposits, compared with 0.9 percent at the end of last year.

The cash movement largely consists of large deposits. The average balance of time deposits is 94 million won per account at foreign banks, which is three times bigger than that of domestic banks. Accounts with over 500 million won balances reach 50.9 percent of the total at foreign banks, compared with 35.5 percent at domestic banks.

The trend is because Koreans tend to think that foreign banks are safer and because of their high deposit interest rates.

Citibank, HSBC and some other foreign banks pay 7.2 percent annual percentage rate for six-month time deposits, which is higher than domestic banks' 6.7 percent to 7 percent. For this reason, time deposits at foreign banks for less than six months grew by 1.07 trillion won, leading the deposit increase in the domestic financial market.