Dollar Deposit Balances at Banks Stall Amid Soaring Exchange Rates

Demand for Realizing FX Gains
Won-Dollar Exchange Rate Surges Above 1,480 During Trading
Authorities Call for Restraint... Banks Lower Dollar Deposit Rates

The balance of U.S. dollar deposits at major commercial banks has decreased by nearly 2 trillion won compared to the end of last year. This is due to a large number of depositors selling dollars to realize foreign exchange gains as the KRW-USD exchange rate has risen sharply.

According to the financial sector on January 22, the balance of dollar deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at approximately 66 billion dollars as of January 20. This represents a decrease of 1.2 billion dollars (about 1.7652 trillion won) compared to the end of last year (67.2 billion dollars). After surging from about 60.3 billion dollars in November last year to about 67.2 billion dollars in December, dollar deposits have recently stagnated at some commercial banks. A representative from one of the commercial banks explained, "We believe there has been demand to realize foreign exchange gains as the exchange rate has risen compared to the end of the year."

The previous day, the KRW-USD exchange rate in the Seoul foreign exchange market surpassed the 1,480 won mark during trading hours. On this day, the exchange rate opened at 1,480.4 won, up 2.3 won from the previous trading day, and at one point rose to 1,481.4 won. However, following President Lee Jaemyung's remarks about a 'decline in the exchange rate,' it plunged and closed at 1,471.3 won, down 6.8 won from the previous trading day. Since January 16, the KRW-USD exchange rate has remained in the 1,470 won range for four consecutive trading days. The main reason for the rise in the exchange rate is the escalating tension between the United States and Europe over Greenland. U.S. President Donald Trump's threat of a 'Greenland tariff' has triggered 'Sell America' (selling U.S. assets), further increasing upward pressure on the exchange rate. President Trump announced that, starting February 1, a 10% tariff would be imposed on the eight European countries that have deployed troops to Greenland, and from June, the tariff would increase to 25%.

As the KRW-USD exchange rate remains high, banks have recently refrained from marketing dollar deposits and have lowered interest rates. This is because financial authorities have called for stronger management as the exchange rate has soared since the beginning of the year. On January 19, the Financial Supervisory Service convened executives from commercial banks and requested countermeasures for the high exchange rate. Authorities reportedly believe that investment in dollar-denominated products is one of the factors driving the exchange rate higher. Lee Chanjin, Governor of the Financial Supervisory Service, also stated at a recent market review meeting, "As foreign currency deposits and insurance increase, the risk of financial consumer losses due to exchange rate fluctuations is also growing. Please guide financial companies to refrain from excessive marketing and events through meetings with management," he requested.

Accordingly, major commercial banks have not only suspended marketing but have also lowered interest rates on dollar deposits. Shinhan Bank's interest rate for dollar-denominated foreign currency deposits (for maturities of at least three months but less than six months) dropped from 3.21% per annum on January 14 to 3.11% per annum as of January 21, a decrease of 0.1 percentage point in one week. Woori Bank, on January 15, drastically reduced the dollar interest rate on its overseas travel-specialized foreign currency deposit product, 'Wibitravel Foreign Currency Deposit,' from 1.0% per annum to 0.1% per annum, which is one-tenth of the previous rate.