In the 'Dollar Drought' Emergency... Banks Activate Contingency Plans for Foreign Currency Asset Management (Comprehensive)

Korea-US Currency Swap Agreement
Dollar Supply Temporarily Eased
Monitoring Foreign Currency Supply Status
Checking Foreign Currency Liquidity

[Asia Economy Reporter Kim Min-young] The Bank of Korea has signed a bilateral currency swap agreement worth $60 billion with the U.S. Federal Reserve (Fed), providing relief to banks experiencing a dollar shortage. While the banking sector believes that the immediate crisis has been averted, they remain vigilant about the risk of a sudden dollar shortage and are fully committed to managing foreign currency assets by activating contingency plans.

According to financial authorities on the 20th, Shinhan Bank recently strengthened daily monitoring of foreign currency assets and liabilities. If significant asset fluctuations are expected, prior consultations among related departments are required.

Kookmin Bank is checking foreign capital trends under the leadership of its Capital Markets Group and is closely examining unusual indicators from the past. Woori Bank also holds daily foreign currency indicator review meetings and receives frequent market situation reports from its overseas branches.

Hana Bank is focusing on increasing the proportion of foreign currency deposits, while NH Nonghyup Bank has formed a Foreign Currency Liquidity Emergency Task Force (TF) to manage liquidity.

Banks have also established committed lines and credit lines that allow them to borrow foreign currency from overseas financial institutions during crises. Under these agreements, domestic banks can borrow foreign currency at agreed limits and exchange rates whenever needed. It is a type of overdraft facility between financial institutions.

Eun Sung-soo, Chairman of the Financial Services Commission (right)

Shinhan Bank has signed a $1.2 billion committed line with Credit Suisse and others, and Woori Bank has secured $800 million.

Kookmin Bank has also set up a committed line adjustable between $500 million and $800 million depending on market conditions. The bank has also signed credit lines worth $7 billion with Citigroup, Standard Chartered Group, and others.

Hana Bank recently secured about $1.2 billion from 3 to 4 overseas financial institutions through additional credit line contracts. A Hana Bank official stated, “We are making every effort to secure funds on all fronts.”

The foreign currency soundness of domestic banks is considered to be good. As of the end of last month, foreign currency deposits at the four major banks totaled $43.9 billion. Also, as of the end of last month, the foreign currency Liquidity Coverage Ratio (LCR) stood at 128.3%, exceeding the Financial Supervisory Service’s regulatory ratio of 80%. The LCR, an indicator of foreign currency soundness, represents the ratio of highly liquid foreign currency assets that can be immediately converted to cash against foreign currency outflows over 30 days during a liquidity crisis.

However, the situation is not one to be complacent about. As major global institutions and investors are actively purchasing the “safe haven asset” dollar, South Korea’s Credit Default Swap (CDS) premium has been on the rise. It fell to a historic low of 20 basis points (bp) (1bp=0.01%) in January but recently jumped to the 50bp range.

On the 20th, as the KOSPI and KOSDAQ indices started higher, dealers were busy working in the KB Kookmin Bank dealing room in Yeouido, Yeongdeungpo-gu, Seoul. The won-dollar exchange rate opened at 1,253.7 won, down 32.0 won. Photo by Moon Honam munonam@

A financial industry official said, “Although the stock market is falling unprecedentedly, the currency swap agreement has fortunately been signed, which will somewhat stabilize the market. However, domestic banks, still traumatized by the foreign exchange crisis, are on high alert and closely monitoring market conditions.”

This content was produced with the assistance of AI translation services.