Corporate dollar deposits surge, hitting record high in July

South Korea has seen a significant surge in resident foreign currency deposits, primarily driven by corporate dollar holdings. In July alone, these deposits increased by $15.01 billion, bringing the total to $128.34 billion. This marks the second-largest monthly increase on record, following a $15.88 billion rise in December of the previous year.

The Bank of Korea reported that the growth was concentrated in dollar-denominated deposits and corporate accounts. Corporate foreign currency deposits reached $112.56 billion by the end of July, an increase of $13.57 billion from the previous month. Individual deposits also grew, adding $1.44 billion to reach $15.77 billion.

Specifically, dollar deposits held by corporations saw a record-breaking increase of $10.11 billion in July, surpassing the previous record of $8.57 billion in November 2022. This surge is largely attributed to the strong performance of exports, particularly in the semiconductor sector, which has led to increased foreign currency receipts. Additionally, securities firms have seen inflows from foreign bond issuance and customer deposits.

Another key factor contributing to the rise in dollar deposits is the rapid depreciation of the South Korean won against the U.S. dollar. "As the won-dollar exchange rate fell too quickly, companies preemptively purchased U.S. dollars in anticipation of a future rise in the exchange rate," explained a Bank of Korea official. The won-dollar exchange rate fell sharply from 1,549.4 won at the end of June to 1,424.0 won at the end of July. Euro and yen deposits also increased, by $2.22 billion and $1.5 billion respectively, attributed to corporate receipt of current account funds and dividend payments.

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As the won-dollar exchange rate fell too quickly, companies preemptively purchased U.S. dollars in anticipation of a future rise in the exchange rate.