Market-based funds accumulate in mutual fund sectors such as agriculture, fisheries, and university lending institutions.

Market-based funds are flowing into mutual finance sectors such as agriculture, fisheries and credit unions as the upward trend in market interest rates enters its final phase. This is because consumers seeking higher interest rates have switched to mutual financing as commercial bank deposit rates have fallen. Mutual finance is rapidly siphoning off market funds through special sales of deposits with tax breaks and high interest rates.

According to the Bank of Korea’s economic statistics system of December 23, the balance received by mutual financial associations such as agriculture, fisheries, credit unions and forestry associations in March this year was 631.494 trillion won, an increase of 8.7695 trillion won compared with previous month. This is the largest increase since November and December last year, by 10.3786 trillion won and 11.4367 trillion won, respectively, and the third largest increase since October 1993, when related statistics were confirmed.

The most important reason for the concentration of funds in the mutual fund sector is the difficulty of finding high-interest deposit products this year, as central banks at home and abroad have stopped raising interest rates and are considering lowering them. The interest rate on one-year time deposits at Korea’s five largest banks (KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup), which are most accessible to financial consumers, is just 3.5% per annum, including preferential interest rates.

On the other hand, the mutual finance sector has established itself as a deposit destination for high-speed financial consumers, while continuing to provide “guerrilla” special products. This month, deposits maturing at 4.01% per annum from Jeonju Credit Union A were “sold out” just a day after launch. An official from Credit Union A said, “We are not selling it now because we have exceeded our internally set limit for sales in one day.”

Similarly, direct deposits maturing at 4.1% per annum from Jeju B Fisheries Cooperative in the same month are currently closed. A similar phenomenon occurred with installment savings products, and an annual installment savings product with an annual interest rate of 5% from Nonghyup in Gwangju this month was exhausted after reaching its limit of 5 billion won in a single day.

The sharp increase in interest rates in Gangwon Province at the end of 2022 is also one of the reasons for the concentration of the mutual finance sector. It is interpreted that deposits that were rolled over to the same maturity period during the “low interest rate” phase moved in search of higher interest rates due to the need for short-term financing, then lasting 3-6 months.

Moreover, savings banks, which are an alternative high-interest deposit site for commercial banks, have also seen a significant decline in interest rates, as the average interest rate on one-year time deposits has dropped from 3.96% per annum at the beginning of this year to 3.69. % from 23. This is a phenomenon that occurred when savings banks, which found it difficult to find a place to manage funds due to the collapse of the loan market for financing real estate projects (PF), stopped raising funds through high-interest deposits. As a result, the savings bank receipts balance gradually declined to 103.74 trillion won in March this year, after reaching an all-time high of 121.3572 trillion won in November last year.

The tax benefits afforded to mutual financial depositors have also helped lead the investment technology community. Mutual financial institutions such as Nonghyup, Suhyup, Credit Union and Saemaul Geumgo are subject to a low tax rate on deposits of union members under the Special Taxation Restrictions Act. The advantage is that interest income tax is only levied at 1.4% on the principal amount of up to 30 million won, including all financial institutions in the mutual insurance sector. An interest income tax of 15.4% is levied on general deposits.

“Funds attracted by high interest rates last year appear to have shifted due to earlier maturities this year,” a financial authority official said. “Mutual financial associations such as agriculture, fisheries, credit unions and forestry appear to be attracting influence as individual business lending increases.”

(Reporter Yang Se-ho)