Seoul, South Korea – The fluctuation of the South Korean won against the US dollar has led to increased volatility in dollar deposits at South Korean banks. As the dollar strengthened beyond 1,400 won per dollar, individuals have been adjusting their foreign exchange strategies, leading to both withdrawals and new deposits.
According to data from the five largest South Korean banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup), the total balance of dollar deposits stood at 601.5 billion US dollars as of November 22nd, marking a weekly increase of 1.3 billion dollars. Following the US presidential election in November 2020, when the dollar strengthened significantly, dollar deposits surged to 629.8 billion US dollars by November 8th. However, this figure dropped to 588.4 billion US dollars a week later. The recent increase indicates renewed interest in dollar-denominated assets.
Typically, when the Korean won weakens against the dollar, individuals tend to exchange their won for dollars to profit from the exchange rate difference, leading to a decrease in dollar deposits. However, the sustained strength of the dollar since the US election has prompted many to accumulate dollar assets. Baek Seok-hyun, an economist at Shinhan Bank's S&T Center, predicts that the exchange rate could reach as high as 1,450 won per dollar in the first half of next year.
While the volatility in foreign exchange rates has increased, major banks assert that they have sufficient liquidity management measures in place to mitigate any potential risks. One official from a commercial bank stated that the bank has maintained a robust liquidity position through various foreign exchange funding strategies.
Indeed, the liquidity coverage ratio (LCR) of major banks stood at a high level of 140-150% in the third quarter, indicating their ability to withstand sudden shocks. The LCR measures the proportion of highly liquid assets a bank holds to meet short-term obligations.
However, the strengthening of the dollar could negatively impact banks' capital adequacy ratios, as the Korean won value of foreign currency-denominated liabilities increases. In response, banks such as Shinhan Bank and NH Nonghyup Bank are closely monitoring their capital adequacy and strengthening their liquidity management.
To attract more customers to their dollar deposit products, banks are offering competitive interest rates and promotions. For instance, SC First Bank is offering a special interest rate of up to 4.0% on its "Choice Foreign Currency Deposit" until November 29th. Woori Bank is also running a promotion where customers who deposit or exchange 100 US dollars through its "Wibee Travel Foreign Currency Deposit and Exchange Pouch" service will have a chance to win a delivery coupon.
[Copyright (c) Global Economic Times. All Rights Reserved.]
