Corporate foreign currency deposits hit 10-year high in May

South Korean companies are holding onto foreign currency reserves at a rate not seen in a decade, with their foreign currency deposits hitting a record high proportion in May.

As of May 29, total foreign currency deposits held by residents in domestic foreign exchange banks reached $112.25 billion, an increase of $1.57 billion from the previous month, according to the Bank of Korea. This surge is largely driven by corporate deposits, which grew by $2.54 billion to $97.42 billion. In contrast, individual deposits saw a decrease of $960 million, falling to $14.83 billion.

The proportion of corporate deposits within the total foreign currency holdings rose to 86.8%, marking the highest level since April 2016. This trend suggests that companies are choosing to hold onto their export earnings in foreign currencies rather than converting them to the Korean won, even amidst a record current account surplus fueled by the semiconductor boom.

Analysts point to this corporate behavior as a contributing factor to the continued weakness of the Korean won. The exchange rate has remained above 1,500 won per dollar since mid-May. The government has reportedly urged major exporting companies, including Samsung Electronics and SK Hynix, to convert their export proceeds and repatriate overseas funds.

An official from the Bank of Korea noted that the increase in dollar deposits is not only due to strong exports from large corporations but also to the growing volatility in financial markets. This volatility has led securities firms to deposit collateral for derivatives trading, such as KOSPI 200 futures and options, in dollar-denominated accounts.

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The increase in dollar deposits is not only due to strong exports from large corporations but also to the growing volatility in financial markets. This volatility has led securities firms to deposit collateral for derivatives trading, such as KOSPI 200 futures and options, in dollar-denominated accounts.