Banks’ FX deposits soar amid turmoil

By Kang Seung-woo

Korean banks’ foreign exchange deposits steeply increased last month in response to growing concerns over currency volatility in global financial markets and solid exports, data showed Tuesday.

The foreign exchange rate was on the down side last month, but ongoing European sovereign debt problems in Greece and Italy can still wreak havoc on the global financial markets, which led companies to buy dollars and save them in their accounts.

According to the bank industries, foreign currency deposits at the nation’s five major commercial banks — Kookmin, Shinhan, and Woori Bank, Hana banks and Industrial Bank of Korea (IBK) — recorded $17.09 billion as of the end of October, up $2.4 billion or 16.6 percent from the previous month.

The October reading was the largest monthly growth since 2009, when data collection began.

The sharp increase came mainly because companies bought dollars last month and put them into foreign exchange deposits in anticipation of a possible rebound of foreign exchange rates amid the global financial turmoil.

Currently, global markets are being plagued by the sovereign debt crisis in eurozone countries, which is expected to continue for the time being.

To make the situation worse, there are growing fears that the world economy is likely to undergo a double-dip recession that is sparking a flight into safe assets.

The Korean won depreciated from the 1,040 won level against the U.S. dollar in early August to 1,200 won in early October due to the downgrade of U.S. credit rating and the European debt fiasco, but thanks to the nation’s expanded currency swaps, the local currency fell 2.19 percent against the U.S. greenback for all of October, compared with the previous month, landing at below 1,100 won.

As of Monday, it closed at 1,123.20 won to the U.S. dollar.

Along with the currency volatility, the nation’s steady exports also contributed to the increase of foreign exchange deposits.

Asia’s fourth-largest economy tallied $4.29 billion in its trade surplus last month, up from a $1.55 billion surplus tallied in September.

Meanwhile, the foreign currency loan balance at the five lenders fell in October, compared with the preceding month, as firms rushed to repay their foreign exchange debts on worries over a foreign-exchange loss from a possible dollar appreciation.

The lending registered $15.5 billion last month, down $73 million from a month ago, the data noted.

“Declining corporate investment demand and currency volatility led to the rise of foreign exchange deposits. Companies appear to be paying much attention to currency volatility that can be affected by the European financial tumult and savings bank scandal,” said an official of the industry.