SK hynix(000660)'s $26.5 billion (about 40 trillion won) raised through American Depositary Receipt (ADR) issuance is set to flow into Korea starting on the 15th, and banks are grappling with how to manage the funds. With a large amount of dollars arriving at once, not only the foreign exchange market but the banking sector as well is on high alert.
SK hynix plans to bring in the dollars raised through ADR issuance in stages into its domestic bank accounts. SK hynix is said to be planning to open accounts dispersed across multiple foreign exchange transaction banks. This is seen as a measure to prevent funds from concentrating in a specific bank and to ensure smooth currency exchange and fund execution going forward.
The scale of this fund inflow exceeds the amount of dollars supplied domestically (about $19.9 billion) through the Korea-U.S. currency swap during COVID-19. At the time, dollar liquidity was supplied to the domestic market through a currency swap with the Federal Reserve (Fed), but there is an assessment that it is highly unusual for $26.5 billion to flow in solely through a private corporations' fundraising, as in this case.
A large inflow of foreign currency deposits provides banks with foreign exchange transaction opportunities while also adding to their management burden. Banks earn revenue by lending dollar deposits raised from customers to corporations or investing in bonds and other assets. However, when tens of billions of dollars of foreign currency come in all at once in a short period, it is not easy to absorb it all. Profitability may decline because banks must pay interest on deposits even for funds without secured investment destinations.
A banking industry official said, "Banks basically raise funds and generate revenue by managing them," and added, "If funds of too large a scale flow in at once, there is a risk that interest expense may occur because they cannot absorb it all."
The burden of asset-liability management (ALM), which matches the maturities of assets and liabilities, is also expected to grow. These funds are not of a nature to remain in banks for a long period. SK hynix plans to sequentially invest about 40 trillion won raised through ADR issuance in the Yongin semiconductor cluster, the Cheongju advanced packaging plant construction, and advanced equipment such as EUV (extreme ultraviolet) lithography tools. From the banks' perspective, it becomes difficult to manage large foreign currency deposits over the long term when they could be withdrawn at any time.
The process of converting dollar deposits into won later is another burden on banks. In the foreign exchange market, a plan is being discussed to split the ADR funds into about $1 billion per day for conversion. The market believes that even now SK hynix and Samsung Electronics(005930) are offering about $800 million per day in negotiation volumes (selling export proceeds received in dollars into the market). If the ADR funds are also converted in sequence on top of this, the burden on banks to manage foreign currency funds could increase further.
Another banking industry official said, "Since it is realistically difficult to convert $26.5 billion all at once, the most likely approach is to split the conversions through multiple transaction banks," and added, "As fund inflows and spending proceed in stages, banks will adjust their foreign currency management plans accordingly."