Corporate dollar deposits surged by nearly $3.5 billion in three days as the won-dollar exchange rate climbed past 1,560 won per dollar for the first time since the financial crisis. Financial authorities see corporations holding onto dollars received from export payments, rather than converting them, as one cause of the won's weakness, alongside foreign investors selling Korean stocks and rising U.S. Treasury yields.
According to financial industry sources Monday, corporate dollar deposits at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at $53.39 billion as of Thursday, an increase of $3.461 billion from the end of last month. Deposits grew by roughly 5.39 trillion won in just three business days.
"Exchange rates are about sentiment, and companies expecting the won to weaken further are holding onto the dollars they received after exporting rather than converting them," a senior financial supervisory official said.
Indeed, corporate dollar deposits, which had swelled to about $52.4 billion at the end of last year, continued to shrink under direct and indirect pressure from authorities mindful of the exchange rate, falling to around $44.7 billion at the end of March this year. But they rose again to $48 billion in April, passed $49.92 billion at the end of May, and increased by about $3.5 billion this month.
The market expects the won's weakness may persist for some time. NH NongHyup Bank predicted that foreign net selling of stocks could continue through the third quarter, with roughly 150 trillion won potentially flowing out. In that case, the won-dollar exchange rate could rise to the 1,590 won range. If corporate dollar deposits are not released, the pace of the exchange rate's rise could accelerate further. Kim Jung-sik, professor emeritus of economics at Yonsei University, explained, "Companies are trying to secure dollars for raw materials, payment settlements, overseas remittances and investment funds in preparation for a further rise in the exchange rate."
