South Korea's financial authorities have decided to review the status of corporate dollar deposits. The move comes amid concerns that companies are fueling the won's weakness by parking export proceeds at banks without converting them.
The Financial Services Commission (FSC) shared this position at a foreign exchange market meeting with banking officials the previous day, according to financial industry sources Monday. The FSC also asked banks to refrain from excessive marketing to attract foreign currency deposits.
"As I understand it, the authorities made remarks to the effect that they would look into the actual situation regarding corporate dollar deposits," a senior industry official said.
Inside and outside the authorities, there is talk that companies anticipating a further rise in the exchange rate are delaying dollar sales or moving up settlement demand. "Corporate dollar deposits are increasing and not coming out to the market," a senior financial supervisory official said. "Wouldn't the won's weakness ease somewhat if those funds were released?"
In fact, corporate dollar deposit balances at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at $53.39 billion (about 81.05 trillion won) as of the 4th of this month, up by as much as $3.461 billion from the end of last month.
The Financial Supervisory Service (FSS) also held a banking-sector meeting on foreign exchange market stabilization the same day, urging that banks refrain from excessive events and solicitation related to dollar deposits amid high exchange rate volatility, and strengthen consumer guidance on the risk of foreign exchange losses.
The authorities also decided to strengthen management of non-deliverable forward (NDF) transactions and foreign exchange positions. They asked the banking sector to cooperate so that NDF transactions do not cause volatility and excessive herding in the domestic foreign exchange market, while shortening the inspection cycle for major banks' foreign exchange positions to a weekly or daily basis.
"Through joint inspections with the Bank of Korea, we plan to examine whether there are speculative transactions or market-disrupting activities riding on the won's weakening trend, and to take measures depending on the results," the FSS said. ▷See this newspaper's June 8 edition, Pages 1 and 4.
