Companies hoard dollars: Deposits hit 3-year, 5-month high

South Korean corporations are holding onto their dollar reserves at a level not seen in over three years, amassing a total of $54.37 billion in dollar deposits. This trend persists even as the government urges businesses to convert their export earnings into Korean won.

According to financial sector data, the combined dollar deposits held by five major commercial banks, KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, reached $54.371 billion as of June 11. This figure marks the highest since January 2021, when deposits stood at $55.255 billion.

The increase in dollar deposits has been steady since March, coinciding with heightened volatility in the won-dollar exchange rate, partly driven by the conflict in the Middle East. Deposits rose to $46.023 billion at the end of March and continued to climb to $50.713 billion by the end of May. In the first ten days of June alone, deposits surged by an additional $3.658 billion, a 7.2% increase from the previous month's end.

Despite the government's recent calls on major companies to repatriate foreign currency and convert export proceeds promptly, businesses remain hesitant. The won-dollar exchange rate has hovered around the 1,500 won mark since mid-May, prompting companies to hold onto dollars for settling import payments and repaying foreign currency debt.

Experts express concern that the high volatility of the won-dollar exchange rate is likely to continue in the near future, given the ongoing external uncertainties, including the situation in the Middle East. Lee Jin-kyung, a senior researcher at Shinhan Investment & Securities, noted that while government interventions and the National Pension Service's forward currency sales have temporarily lowered the rate, the market is expected to remain volatile.

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The won-dollar exchange rate has fallen to the early 1500s due to the government's verbal intervention and the National Pension Service's forward currency sales, but the volatility is likely to continue.