As the KOSPI index repeatedly sets record highs, funds that had stayed in banks are moving rapidly into the stock market. With a break above 5,000 points in sight, the market expects the outflow of bank funds to accelerate further.

As of Thursday, financial sector data showed demand deposits at the five biggest banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — fell by about 30 trillion won from the end of last year as of mid-month.

Tens of trillions of won have left in just about 15 days. Given that demand deposits are typically classified as money waiting to be invested, this is seen as a sign that fund flows have begun in earnest.

Demand deposits can be withdrawn at any time at the depositor’s request. They offer cash-like liquidity and often serve as parking money before investors move into stocks, bonds or funds. The fact that more than 2 trillion won a day is leaving demand deposits on average shows that cash waiting to be invested is moving in earnest into the stock market.

Time deposits are also declining. Time deposits stood at 939.2861 trillion won at the end of last year and fell to 938.6613 trillion won as of mid-month, a drop of 11.5697 trillion won in about 15 days. This is seen as a sign that the appeal of time deposits, which locked up funds during the high-interest-rate period, is weakening quickly.

In contrast, cash waiting on the sidelines of the stock market is at a record high. The Korea Financial Investment Association said investor deposits rose from about 85 trillion won at the end of last year to above 90 trillion won for the first time ever early this year. As of Jan. 15, the balance stood at 92.6030 trillion won, sharply expanding the pool of funds that could flow into equities.

This "money move" is likely to continue. With the KOSPI nearing 5,000 points, expectations of gains are further stimulating investor sentiment. If the rally continues, the shift of funds from banks to equities could accelerate, a forecast showed.

In the process, banks’ time deposits have been left out in the cold. The backdrop to large outflows is the gap between bank deposit rates and capital market returns. Compared with stock market returns over the same period last year, bank rates are still seen as less attractive. Banks have also been cutting time deposit rates further this year.

Banking sector officials said the 12-month time deposit rate at major banks was 2.85 percent at the end of November last year, but fell further to 2.8 percent at all banks as of Jan. 16. The rates were lowered in line with a fall in bank bond yields early this year, which also reduced time deposit rates as an alternative funding source.

In particular, after the Bank of Korea Monetary Policy Board kept its policy rate unchanged for a fifth consecutive meeting on Jan. 15, yields on short-term bank bonds that serve as a benchmark for deposit products have also been falling. This is expected to put additional downward pressure on deposit rates with a time lag.

As the move of money into the stock market becomes clearer, commercial banks are also watching closely. Banks plan to monitor the direction in January. Over the past five years, demand deposit balances in February increased by an average of about 4.4 percent from late January due to corporate performance bonus payments, but there is analysis that even this money could flow into the stock market this year.

Some see the outflow as a short-term trend driven by stock market strength rather than a structural change. A banking sector official said, "Usually some funds leave in January, but the pace is a bit fast," adding, "From the commercial banks’ standpoint, they are watching the market situation closely, but they do not see it as being at a level to adjust rates."

Another banking sector official said, "In the past, even when stock prices rose, some funds remained in deposits, but recently the pace of fund movement between investments and deposits has become much faster," adding, "If stock market strength continues, banks’ deposit base could weaken further."