Won-Dollar Exchange Rate Surpasses 1400 Won, Limited Impact on Banks

On the 22nd, when the won-dollar exchange rate surpassed 1,400 won for the first time in 13 years and 6 months, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Song Hwajeong] As the won-dollar exchange rate surpassed 1,400 won, banks have also been put on alert in managing foreign currency. With banks proactively securing foreign currency funds and preparing for increased exchange rate volatility, the risk is expected to be limited.

According to NICE Credit Rating on the 23rd, as of the end of June this year, the scale of foreign currency assets held by commercial banks (Kookmin, Shinhan, Woori, Hana, SC, Citi) was 264.5 trillion won, an increase of about 95% compared to 135.6 trillion won at the end of 2017, approximately five years ago. The proportion of foreign currency assets within total assets slightly expanded to 13.5% from 10.2% at the end of 2017. Yoon Jaesung, a senior researcher at NICE Credit Rating, explained, "Over the past five years, as commercial banks expanded overseas operations to diversify their businesses, foreign currency assets increased slightly more than the growth rate of total assets."

In particular, the increase in foreign currency assets of domestic banks has significantly expanded compared to before this year. As a result, the gap between foreign currency assets and foreign currency liabilities widened. The ratio of foreign currency assets to foreign currency liabilities expanded from 99.5% at the end of last year to 119.7%. This expansion in the scale of foreign currency assets relative to foreign currency liabilities is interpreted as banks proactively securing funds in response to increased exchange rate volatility. Financial authorities also requested banks to proactively secure medium- to long-term foreign currency funds to respond to the increased volatility in global financial markets.

The net foreign exchange exposure exposed to foreign exchange risk has increased. The foreign exchange position ratio relative to equity capital was 5.33% at the end of June, up 2.06 percentage points from the end of January. It nearly doubled in five months. However, since foreign currency assets exceed foreign currency liabilities, the burden related to foreign exchange exposure is expected to be limited in the future. Researcher Yoon analyzed, "Considering the trend of net foreign exchange exposure, including hedging positions such as futures, the burden related to foreign exchange exposure is limited going forward. Although the recent sustained dollar strength may cause foreign exchange losses related to foreign currency liabilities to act as a burden on profitability, given that the scale of foreign currency assets exceeds that of foreign currency liabilities, the risk related to exchange rate fluctuations such as dollar strength is unlikely to lead to a deterioration in banks' financial stability."

Foreign currency liquidity of domestic banks remains in good condition. According to the Financial Supervisory Service, the foreign currency Liquidity Coverage Ratio (LCR) of domestic banks in August was 124.2%, exceeding the regulatory ratio (80% or higher) by about 40 percentage points.

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