Dollar Accumulates in Bank Accounts... Rapid Increase in Dollar Deposits in Banking Sector

Dollar Deposits at 5 Major Banks Reach $49.88 Billion by End of August
Increase of About $10 Billion Since End of January
Rising Demand for Safe Assets Due to COVID-19 Resurgence

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] Last month, the dollar deposit balance at the five major domestic banks increased to the highest level this year. This is attributed to the increased demand for the safe asset, the dollar, amid growing economic uncertainty due to the resurgence of COVID-19.

According to the banking sector on the 2nd, the dollar deposit balance at the five major domestic banks stood at $49.88 billion at the end of August, up about 25% from $39.626 billion at the beginning of the year. Most of these banks recorded their highest dollar deposit balances this year. Thanks to Bank A’s dollar deposits exceeding $16.4 billion in August, the total foreign currency deposits surpassed $20 billion. Bank E’s dollar deposits also increased by more than 40%, from $8.039 billion at the end of January to $11.582 billion at the end of August.

If the current trend continues, there is a high possibility that the Bank of Korea’s announcement of resident dollar deposit balances for August later this month will break the record for the largest scale.

According to the 'Resident Foreign Currency Deposit Trends' announced by the Bank of Korea on the 24th of last month, the dollar deposit balance as of the end of July reached a record high of $76.22 billion. As dollar deposits surged, the total foreign currency deposit balance also increased for five consecutive months since March, the early stage of the COVID-19 outbreak, reaching $87.4 billion, marking the largest scale on record. Resident foreign currency deposits refer to foreign currency deposits held domestically by nationals, domestic companies, foreigners residing in Korea for more than six months, and foreign companies operating in Korea.

Since July, as the atmosphere of COVID-19 resurgence emerged, companies and individuals have been rushing to secure dollars, the representative safe asset. This reflects the underlying anxiety that the domestic economy will not recover easily due to the COVID-19 resurgence. South Korea’s economic growth rate in the second quarter was -3.2%, the lowest since the fourth quarter of 2008 during the global financial crisis.

Despite the dollar deposit interest rate being around 0.2%, making it difficult to expect interest income, and the risk of exchange losses due to the weak dollar trend, funds are flocking to dollar deposits. On this day, the won-dollar exchange rate in the Seoul foreign exchange market opened at 1,185.0 won, up 2.0 won from the previous trading day.

Even in unfavorable conditions for dollar savings, demand for dollars is increasing because it is considered a safe asset, prompting banks to actively seek new foreign currency deposit sign-ups. Shinhan Bank is currently running an event on its mobile application 'SOL' where customers who make their first-ever foreign currency deposit of $1,000 or more in won-based funds with free deposit and withdrawal privileges receive dollars. NH Nonghyup Bank also held a foreign currency deposit festival until the end of last month, offering prizes to customers holding balances equivalent to $1,000 or more.

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