Korea sees low cash circulation amid tepid facility investment

Cash circulation of deposit withdrawals from banks in South Korea fell to the lowest level in nearly seven years in August amid lackluster facility investment, data showed Tuesday. The velocity of banks' deposit circulation, a gauge of cash flow, came in at 3.4 times per month in August, the lowest since 3.2 times in February 2007, according to data by the central bank. The deposit circulation rate refers to the frequency of deposit withdrawals from bank accounts. A lower reading means that depositors tend to park money in bank accounts due to uncertainty or tepid investor sentiment. The deposit circulation rate has been on a falling trend since it hit an average of 4.6 times per month in 2009, the data showed. On a monthly basis, the rate has stayed at less than 4 times so far this year. Local banks' deposits including demand and time deposits were valued at 998.8 trillion won (US$934.6 billion) as of August, up 8.6 trillion won from the end of last year, according to the Bank of Korea (BOK). The data came as local companies are hoarding cash instead of making investments amid lingering economic uncertainty. Facility investment is likely to contract 1.2 percent this year before growing 5.7 percent in 2014, according to the central bank. Capital spending declined 8.2 percent in the first half and is likely to gain 6.3 percent in the second half of this year, it added. A separate central bank report showed that Korea's major companies saw their business confidence sharply dented by the 2008 global financial crisis on their sensitivity to external conditions. The report said that local firms tended to have a more negative business sentiment following the 2008 global financial crisis, and such tepid confidence, in turn, discouraged them from making facility investments and carrying out other economic activities.