▲ Projected Q4 Bank Bond Rollover Volume for 5 Major Commercial Banks
Issuance of bank bonds, a key funding channel for the banking sector, is expected to surge significantly in the fourth quarter of this year.
This is because low-cost deposits such as demand deposits, which serve as core funding sources for banks, have shrunk—worsening the funding structure—while a record-scale volume of bank bonds is approaching maturity.
According to the financial investment industry on Tuesday (September 15), total bank loans (household and corporate) announced by the Bank of Korea last week stood at 2,629 trillion won, an increase of more than 13 trillion won from the previous month. Meanwhile, total deposits remained almost unchanged from the previous month at 2,592.6 trillion won.
In terms of growth rate, the year-on-year growth rate of total bank deposits in August stood at 4.5%, outpacing the 4.2% growth rate of loans. However, the gap between the two indicators narrowed from 3.1 percentage points in May to 0.3 percentage points in August.
This shift stems more from a slowdown in deposits rather than an expansion in loans, largely driven by a loss of momentum in low-cost deposits, which are considered prime funding sources for banks.
Banks' demand-type deposits decreased by about 81 trillion won in July, followed by another 14 trillion reduction in August.
Even as retail funds moved en masse into the stock market in the first half of this year, bank deposits managed to hold steady as short-term idle funds from some large corporations flowed into savings-type deposits such as demand accounts.
However, corporate short-term funds can be withdrawn at any time depending on business needs, making them difficult to rely on as a stable funding base.
As it is not easy to raise deposit rates to capture leaving funds, banks find it more advantageous to issue bank bonds to secure necessary capital.
In addition, a record volume of debt maturing in the upcoming fourth quarter is a key factor fueling bank bond issuance.
According to Yonhap Infomax daily maturity data, the maturing volume of bank bonds for the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) in the fourth quarter of this year reaches 27.125 trillion won.
This significantly exceeds the 14.9 trillion won recorded in the fourth quarter of last year, and surpasses the previous record high of 20.3 trillion won set in the fourth quarter of 2022, when a credit crunch immediately followed the Legoland incident.
Han Si-hwa, a researcher at Hanwha Investment & Securities, explained, "This is because 1-to-2-year bonds issued in the fourth quarters of 2024 and 2025 are maturing, along with short-term instruments issued primarily in floating-rate notes (FRNs, bonds whose interest payments periodically fluctuate with changes in market rates) ahead of the base rate hike in June of this year."
Considering the structural factor of shrinking prime bank deposits and the supply-demand factor of large-scale maturing volumes, bank bond issuance in the fourth quarter is deemed bound to increase.
This serves as a factor limiting the potential for a narrowing credit spread (interest rate gap) between treasury bonds and bank bonds.
As of September 14, the interest rate spread between 3-year treasury bonds and 3-year bank bonds stood at around 89 bps.
After peaking at 91.6 bps in July and dropping to 86.5 bps in early August, the spread has shown a pattern of widening again.
(Photo provided by Hanwha Investment & Securities, Yonhap News)
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