Korea corporate spare cash hits record in Q2 as households shift to stocks
In short
South Korea's non-financial companies posted a record 67.1 trillion won in net funds operation in the second quarter, driven by a semiconductor export boom, according to Bank of Korea provisional flow-of-funds data released on Oct. 7. Households' net funds operation fell 18.5 trillion won from the first quarter to 60.7 trillion won, as deposits fell and stock and fund holdings reached a record 101.6 trillion won. Household debt to nominal GDP dropped to 81.1 percent, the lowest since the second quarter of 2016.
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South Korea's non-financial companies recorded a net funds operation of 67.1 trillion won in the second quarter, the largest since the statistics began in the first quarter of 2009, the Bank of Korea said on Oct. 7 in its provisional flow-of-funds release. The figure was 46.2 trillion won higher than the first quarter's 20.8 trillion won, and Yonhap reported that corporate funds operation as a whole jumped from 137 trillion won to 267.1 trillion won over the same period. [ 2 , 3 ]
Of the corporate funds operation, 84.3 trillion won went into deposits at financial institutions, 16.3 trillion won into bonds and 21.5 trillion won into equity securities and investment funds. Kim Yong-hyun, head of the Bank of Korea's flow-of-funds team, said listed companies' net income rose from 111 trillion won in the first quarter to 189 trillion won in the second, which he attributed to expanded net profits at semiconductor companies including Samsung Electronics and SK Hynix. He said companies increased financial activity with the surge in spare cash. Hankook Ilbo quoted him saying non-financial companies are normally fund-deficit entities because they invest in facilities and technology, but the semiconductor boom produced a large surplus for a second consecutive quarter. Chosun Ilbo, working from its feed summary, described companies shifting from raising money in markets toward becoming large buyers of deposits and bonds. [ 1 , 2 , 3 ]
Households and non-profit institutions moved in the opposite direction. Their net funds operation was 60.7 trillion won, down 18.5 trillion won from 79.2 trillion won in the first quarter, which the Bank of Korea attributed to lower household income and increased net home purchases. Deposits at financial institutions swung from a 29.4 trillion won increase in the first quarter to a 23.3 trillion won decline. Hankook Ilbo, citing the same data, said about 39 trillion won left savings deposits while roughly 20 trillion won moved into securities firm deposits. [ 2 , 3 ]
Holdings of equity securities and investment funds rose to a record 101.6 trillion won from 61.4 trillion won in the first quarter, with 67.2 trillion won of that in domestic shares, also a record, Yonhap and Hankook Ilbo reported. Investment fund shares rose from 28.5 trillion won to 35.6 trillion won, while holdings of non-resident issued shares fell from a 14.5 trillion won increase to a 1.3 trillion won decrease. Kim said short-term savings deposits fell 33.6 trillion won and long-term deposits 5.4 trillion won, but resident-issued shares and fund shares were both at all-time highs, saying the second quarter clearly showed a money move. [ 2 , 3 ]
The data also showed household financial debt relative to assets rising to a record 2.78 times from 2.60 times, Yonhap reported. Household debt to nominal GDP fell 4.2 percentage points to 81.1 percent at the end of the second quarter, the lowest since 80.2 percent in the second quarter of 2016. Kim said nominal GDP grew 6.2 percent while household debt rose 1.1 percent, and that the government's target of bringing the ratio below 80 percent could possibly be met within the year. The general government sector switched from net borrowing of 23.3 trillion won in the first quarter to net funds operation of 11.1 trillion won in the second. [ 2 ]
Why it matters
The data show corporate cash surpluses, concentrated in semiconductor makers, flowing into deposits and bonds, which could change how companies and financial markets interact. Households moving money out of bank deposits and into equities changes the funding mix for banks and raises their exposure to stock markets. The falling household debt-to-GDP ratio is framed by the Bank of Korea as progress toward a stated government target, though the bank only said reaching it this year is possible.
Key facts
- The Bank of Korea released provisional flow-of-funds statistics for the second quarter (April–June) on Oct. 7. [ 2 , 3 ]
- Non-financial companies' net funds operation was 67.1 trillion won, up 46.2 trillion won from 20.8 trillion won in the first quarter and the largest since the statistics began in the first quarter of 2009. [ 2 , 3 ]
- Corporate funds operation totaled 267.1 trillion won, including 84.3 trillion won in deposits at financial institutions, 16.3 trillion won in bonds and 21.5 trillion won in equity securities and investment funds. [ 2 , 3 ]
- Households' and non-profit institutions' net funds operation was 60.7 trillion won, down 18.5 trillion won from 79.2 trillion won in the first quarter. [ 2 , 3 ]
- Household deposits at financial institutions fell 23.3 trillion won in the second quarter after rising 29.4 trillion won in the first quarter. [ 2 , 3 ]
- Household holdings of equity securities and investment funds reached a record 101.6 trillion won, of which 67.2 trillion won was in domestic shares. [ 2 , 3 ]
- Household debt to nominal GDP fell to 81.1 percent at the end of the second quarter from 85.3 percent at the end of the first quarter, the lowest since 80.2 percent in the second quarter of 2016. [ 2 ]
Confirmed by several sources
- The Bank of Korea reported on Oct. 7 that corporate net funds operation hit a record 67.1 trillion won in the second quarter on semiconductor-driven profits. [ 2 , 3 ]
- Household net funds operation fell 18.5 trillion won from the previous quarter to 60.7 trillion won. [ 2 , 3 ]
- Household deposits declined while stock and fund holdings rose, with domestic shares reaching a record 67.2 trillion won. [ 2 , 3 ]
- A Bank of Korea official attributed the corporate surplus to the semiconductor export boom and the resulting rise in operating profits. [ 2 , 3 ]
Still unclear
- Whether the household debt-to-nominal-GDP ratio will fall below the government's 80 percent target within the year. The Bank of Korea's flow-of-funds team head said it was possible, a projection based on one outlet's account and not a confirmed outcome.
- The effect of households moving money from deposits into equities on banks and markets. The documents report the shift in flows but give no assessment of its consequences.
- How much of the overseas share decline reflects valuation changes versus actual selling. The documents state that non-resident issued shares moved from a 14.5 trillion won increase to a 1.3 trillion won decrease, but do not explain the drivers.