Bank of Korea reports sharp rise in yields as household loans and bank deposits accelerate in May

The Bank of Korea’s May financial market trends report showed tighter financial conditions alongside stronger credit and deposit growth. Treasury bond yields rose sharply on domestic and global inflation concerns and shifting monetary policy expectations, while short-term market rates also increased on expectations of a Base Rate hike. Equities remained strong but volatile, with the KOSPI reaching a record 8,801 on June 2 before easing, especially in semiconductor stocks, as expectations of a U.S. Federal Reserve rate hike grew. Bank household lending accelerated to KRW 6.9 trillion in May from KRW 2.1 trillion in April, with mortgage lending rising to KRW 3.2 trillion on higher housing transactions in the Seoul metropolitan area and stronger demand for intermediate payment financing for pre-sold housing. Other household loans swung to a KRW 3.7 trillion increase from a KRW 0.6 trillion decline, reflecting large retail stock investments and seasonal funding demand linked to Family Month. Corporate lending by banks remained strong at KRW 10.6 trillion, including KRW 5.4 trillion for small and medium-sized enterprises and KRW 5.2 trillion for large firms, while companies continued to reduce market funding, with corporate bonds recording KRW 1.1 trillion of net redemption and CP and short-term bonds shifting to KRW 2.1 trillion of net redemption. On the funding side, bank deposits rebounded to a KRW 48.8 trillion increase, driven by transferable deposits and time deposits, and funds under management at asset management companies rose by KRW 86.4 trillion, led by stock-type and derivative-type funds.