Korean Banks Shift to CDs as Deposit Growth Slows: What’s Next?
Korean banks are increasingly relying on certificates of deposit (CDs) to bolster funding, a trend observed in the final quarter of 2025. This shift comes as core deposit growth stalls, signaling a changing landscape in the Korean banking sector. Hana Financial Group led the charge, increasing marketable deposits – which include CDs – by a significant 58.1% to 21.1 trillion won ($14.6 billion).
The Rise of CDs: A Response to Market Conditions
The move towards CDs reflects a broader trend of banks seeking stable funding sources in a climate of stagnant interest rates. As the push for demand deposits loses momentum, CDs offer a competitive alternative for attracting funds. This strategy is particularly relevant given recent economic challenges, as highlighted by Fitch Ratings’ assessment of major Korean banks’ resilience.
Impact on Core Deposits
Although CD issuance is on the rise, core deposits have experienced a slight decline. Hana Financial Group, for example, saw a 2.1% decrease in core deposits during the same period. This suggests a potential trade-off between attracting stable, albeit potentially more expensive, CD funding and maintaining a strong base of traditional deposits.
CDS Spreads and Financial Stability
The dynamics of the Korean banking sector are also reflected in credit default swap (CDS) spreads. While data from May 2009 showed tightening spreads on Korean financials, the current shift towards CD reliance warrants continued monitoring of these indicators as a measure of financial stability.
Looking Ahead: Potential Future Trends
Several factors could shape the future of funding strategies for Korean banks:
- Interest Rate Fluctuations: Any changes in interest rates will directly impact the attractiveness of CDs and influence deposit flows.
- Economic Growth: Continued economic growth could stimulate core deposit growth, reducing the reliance on CDs.
- Regulatory Changes: Recent regulations regarding deposit insurance or capital requirements could influence banks’ funding decisions.
- Competition: Increased competition among banks could lead to more aggressive CD rates, impacting profitability.
The Role of Marketable Funding
The 38% jump in marketable funding in Q4 indicates a strategic shift towards instruments like CDs. This trend is likely to continue as banks navigate the challenges of attracting and retaining deposits in a dynamic economic environment.
FAQ
- What are Certificates of Deposit (CDs)? CDs are savings accounts that hold a fixed amount of money for a fixed period of time, and in return, the bank pays a fixed interest rate.
- Why are Korean banks issuing more CDs? Banks are issuing more CDs as core deposit growth slows and interest rates remain stable.
- What is the impact of declining core deposits? Declining core deposits may indicate a shift in customer preferences or a need for banks to offer more competitive rates to attract funds.
Explore more insights into the Korean financial market and global banking trends on Risk.net.
