So far this month, dollar deposits at the five major banks have increased by $2.37 billion (3.4937 trillion won). While growth in personal dollar deposits has slowed, corporations' dollar holdings have surged. As some note that an increase in corporations' idle dollar deposits could spur a decline in the value of the won, banks appear perplexed by the inflow of dollar deposits despite warnings from the foreign exchange authorities.
According to the financial sector on the 11th, dollar deposits at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — totaled $66.11 billion (about 100.9433 trillion won) as of the 9th. That is an increase of $2.37 billion from the end of last month ($63.74 billion). The total rose by about 3.5 trillion won in six trading days.
Dollar deposits are products in which customers exchange won for dollars and accumulate them, then withdraw in dollars or receive won back at maturity. The rise in bank dollar deposits has been driven by corporations. As exports have increased recently, centered on the semiconductor corporations Samsung Electronics and SK hynix, the dollars they earn have grown. Semiconductor corporations have substantial overseas exports, so most of their revenue is in dollars. SK hynix is known to have more than 90% of its total revenue in dollars.
Recently, corporations, expecting the won to weaken against the dollar, have increasingly opted to keep their dollars as deposits rather than converting them into won.
Dollar deposit rates are around 3.15% to 3.45% annually. Dollar deposits range from on-demand accounts to one-year maturities, and as market rates have risen lately, even short-term product rates have jumped. The dollar deposit rate at Shinhan Bank for maturities under one month rose 0.58 percentage points from the same period a month earlier.
Banks also find themselves in a bind amid swelling dollar deposits. Dollar deposits are often short-term products with relatively low interest rates, making them a cheap way for banks to raise foreign currency. Banks must hold a portion of their assets in foreign currency to prepare for a foreign-currency liquidity crisis.
However, there is pressure from the government's continued warnings about the increase in bank-sector dollar deposits. The foreign exchange authorities are said to have summoned the executives in charge at each bank several times to convey strong views on the exchange rate. Banks plan not to reflect any near-term market rate hikes in dollar deposit rates.
An official at a commercial bank said, "If a customer wants to deposit dollars, a bank cannot stop that. However, our policy is to refrain from any actions that could stimulate the exchange rate, such as raising dollar deposit rates or running promotional drives."