SK hynix(000660) is set to bring $26.5 billion (about 40 trillion won) raised through American depository receipts (ADR) into Korea starting on the 14th, and banks are weighing how to manage the funds. With a massive amount of dollars arriving at once, not only the foreign exchange market but also the banking sector is on high alert.
SK hynix will sequentially bring the dollars raised through the ADR issuance into domestic bank accounts. SK hynix is said to be opening accounts across multiple foreign exchange transaction banks. The move is seen as a step to prevent funds from concentrating in a single bank and to facilitate future currency exchange and fund execution.
The size of this inflow exceeds the roughly $19.9 billion supplied domestically through the Korea-U.S. currency swap during the COVID-19 period. At the time, dollar liquidity was supplied to the domestic market via a currency swap with the Federal Reserve (Fed), but observers say it is highly unusual for $26.5 billion to flow in solely through a private corporation's fundraising, as in this case.
A large influx of foreign currency deposits offers banks foreign exchange transaction opportunities while also adding management burdens. 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 flow in all at once, it is not easy to absorb it all. Profitability can suffer because interest must be paid on deposits even for funds without secured placements.
A banking industry official said, "Banks basically raise funds and manage them to generate revenue," and added, "If an excessively large amount of funds flows in at once, there is a risk that interest expense could arise because we cannot absorb it all."
The burden of asset-liability management (ALM), which matches the maturities of assets and liabilities, is also expected to grow. This money is not intended to remain in banks for a long time. SK hynix plans to sequentially invest about 40 trillion won raised through the 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 withdrawals could occur at any time.
The process of later exchanging the dollar deposits into won is another burden for 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 currently believes SK hynix and Samsung Electronics(005930) are already supplying about $800 million per day in nego volume (selling export proceeds received in dollars into the market). If the ADR funds are also exchanged sequentially on top of that, the burden on banks to manage foreign currency funds could grow even 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 across several transaction banks," and added, "As inflows and disbursements proceed sequentially, banks will adjust their foreign currency management plans accordingly."