Surge in Dollar Deposits at Five Major Banks as Exchange Rate Falls

Dollar Deposits Rise by $3 Billion in July
Up Another $2.2 Billion in First Three Business Days of August
Demand for Dollars Grows Among Companies and Individuals as Exchange Rate Falls

The KRW-USD exchange rate (standard transaction rate) fell by 107 won in the month of July alone, while dollar deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) saw a significant increase. This trend is attributed to a rise in dollar inflows amid strong semiconductor exports, a decrease in companies' incentives to exchange dollars due to the falling exchange rate, and an increase in individual demand to purchase dollars.

As of August 5, according to the banking sector, the dollar deposit balance at the five major banks stood at $69.421 billion, up $4.476 billion from $64.945 billion on July 3, a little over a month prior. During the same period, corporate dollar deposits increased from $52.917 billion to $56.642 billion, a 7.03% rise, and personal dollar deposits grew from $12.028 billion to $12.779 billion, up 6.24%.

The increase in dollar deposits has become even more pronounced this month. The total dollar deposit balance rose by $3.036 billion in July, from $64.147 billion at the end of June to $67.183 billion at the end of July. In just the first three business days of this month, it went up by $2.238 billion, equivalent to 73.7% of last month's entire increase. At this rate, the balance at the end of this month is expected to reach $82.103 billion, an increase of $14.92 billion from the previous month.

The surge in corporate dollar deposits is driven by robust semiconductor exports. With an increase in dollar earnings from exports and a declining exchange rate, companies are choosing to hold onto dollars instead of converting them into won.

According to the Bank of Korea, the current account surplus in June reached a record high of $49.73 billion, already surpassing the entire surplus for the first half of last year ($49.37 billion). A significant current account surplus is also expected in July and August compared to the same period last year.

The influx of funds from SK hynix's U.S. American Depositary Receipts (ADR) listing and the resulting drop in the KRW-USD exchange rate is also cited as a factor encouraging companies to hold more dollars. The lower exchange rate reduces the incentive to convert dollars into won, and as the exchange rate stabilizes, government pressure on companies to exchange dollars has also eased compared to before.

On July 1, the KRW-USD exchange rate (standard transaction rate) fell from 1,548.4 won to 1,441.1 won at the end of the month, a drop of 107.3 won. On August 5, it decreased further to 1,428.2 won, down 12.9 won from the end of the previous month.

A bank official commented, "As the KRW-USD exchange rate has declined, the government's pressure on companies to exchange dollars has eased. The volume of exchanged dollars has decreased in relation to the amount of dollars companies are earning."

Expectations of a future rebound in the exchange rate are also prompting companies to hold onto dollars. Park Hyungjoong, an economist at Woori Bank, explained, "The domestic inflow of SK hynix ADR funds is expected to continue until around mid-month, keeping the exchange rate low, but in September, the Federal Reserve will announce its key interest rate decision. If the dollar strengthens, the exchange rate may rise again, so companies are accumulating dollar deposits in advance."

Banks believe the increase in personal dollar deposits is also influenced by the lowered exchange rate. Demand to secure dollars in advance has increased in preparation for investment in the U.S. stock market, overseas travel, and direct overseas purchases.

Economist Park said, "With significant volatility in the domestic stock market, investors' confidence in the KOSPI has weakened, and the KRW-USD exchange rate level is lower than market expectations. As a result, more people are likely to convert won into dollars in preparation for overseas investment or travel."

This content was produced with the assistance of AI translation services.