Dollar deposits hit record high even as won strengthens sharply

Won-dollar rate at 23-month low of 1,345 won

Buyers at July peak sitting on 15.9% currency loss

Exporters delay conversion, pushing dollar deposits to record

Yen deposits at 22-month high as won-yen rate hits 2-year low

The dealing room at Hana Bank in Jung-gu, Seoul. [Yonhap]

Investors who bought dollars when the won-dollar exchange rate neared 1,600 won in early July have absorbed steep currency losses in just two months. Purchasing $10,000 at the intraday high of 1,599.2 won per dollar on July 1 would have required 15.99 million won ($11,800), but with the rate now down to 1,345 won, that same holding is worth only 13.45 million won — a paper loss of 2.54 million won, or 15.9 percent, before conversion fees.

Yet despite the currency-loss risk that comes with a strengthening won, domestic companies and individuals are buying more dollars, not fewer. Exporters are holding off on converting their dollar earnings in anticipation of a further rate decline, while importers and overseas stock investors are treating the lower exchange rate as an opportunity to accumulate dollars. The result: dollar deposit balances at major banks have grown to an all-time high.

The won-dollar rate traded at 1,345.0 won around 10:30 p.m. Friday in the Seoul foreign exchange market, according to financial industry sources. That is the lowest level in about 23 months, since the intraday low of 1,344.6 won recorded on Oct. 8, 2024.

Compared with the intraday high of 1,599.2 won on July 1, the rate has tumbled 254.2 won in just over two months — meaning the won value of dollar-denominated assets has shrunk by the same margin for companies and investors holding dollars.

Even so, dollar deposit balances are rising quickly. As of Thursday, the combined dollar deposits at the five major commercial banks — KB Kookmin, Shinhan Bank, Hana Bank, Woori and NH NongHyup Bank — totaled $76.98 billion, the largest since the five-bank aggregate data series began in May 2021.

Dollar deposits rose $6.91 billion in August alone to reach $76.34 billion, then climbed a further $643 million in just three trading days so far this month.

Corporates led the surge. Corporate dollar deposits stood at $63.3 billion as of Thursday, also a record high. They rose $6.08 billion in August alone and have added another $500 million so far this month.

An employee examines dollar bills at Hana Bank's counterfeit-detection center in Jung-gu, Seoul. [Lim Se-jun]

Market participants say the rapid fall in the exchange rate has prompted exporters to delay converting their dollar holdings into won, while importers with upcoming payment obligations are buying dollars in tranches. The demand is driven less by speculation on currency gains than by the need to secure funds for trade settlements and to manage exchange-rate risk.

"Export proceeds keep flowing in while exporters hold off on converting to won, so dollar deposits are piling up," said Baek Seok-hyeon, an economist at Shinhan Bank. "Importers are also actively buying dollars in installments, taking advantage of the lower exchange rate."

A banking industry official said companies are expanding their dollar holdings to secure funds for trade transactions, including imports and exports, adding that the sharp drop in the rate over a short period has also led them to hedge against a potential rebound.

Individual dollar deposits also rose to $13.68 billion as of Thursday — the highest in three years and seven months since the $13.85 billion recorded in February 2022. They increased $144 million from the end of August.

Demand to convert won into dollars has continued as well. The five major banks' combined won-to-dollar conversions totaled $60 million from the start of September through Thursday. August conversions reached $389 million, the highest since $506 million in January this year.

A foreign tourist sorts won banknotes at a currency exchange in Myeong-dong, Jung-gu, Seoul. [Yun Chang-bin]

Won-to-dollar conversions fell from $275 million in February to $164 million in June before rebounding to $349 million in July and continuing to climb. Dollar-to-won conversions, by contrast, came to just $111 million in August and $17 million so far this month — roughly one-third the level of won-to-dollar flows.

"Individuals started buying dollars as the won-dollar rate tumbled sharply in July and August," said Lee Nak-won, a foreign exchange derivatives specialist at NH NongHyup Bank. "Demand for dollars to invest in US stocks has also been rising alongside that."

Bargain-hunting for yen has been equally intense. The five major banks' combined yen deposit balances stood at 1.12 trillion yen ($7.2 billion) as of Thursday, the highest in 22 months since 1.15 trillion yen at the end of October 2024.

Yen deposits rose 41.58 billion yen from the end of August, with the increase over just three trading days this month nearly matching the 43.84 billion yen gain recorded for all of August.

The won-yen cross rate fell below 900 won per 100 yen for the first time in about one year and eight months on July 23 and has continued to decline. On Wednesday, it dropped to an intraday low of 853.07 won per 100 yen, the weakest in two years and two months.

Won-to-yen conversions totaled 6.3 billion yen from Tuesday through Thursday — equivalent to 22 percent of the 28.23 billion yen converted in all of August.

Won-to-yen conversions reached 38.86 billion yen in July and 28.23 billion yen in August, up 110 percent and 27.6 percent, respectively, from the same periods last year. Banks attribute the increase to demand from Japan-bound tourists as well as individuals buying yen at what they see as a low price in anticipation of a future rebound.

"Yen deposits have a higher share of individual holders than dollar deposits," Baek said. "Underlying the demand is a perception that the yen is currently undervalued and an expectation that it will rise."

attom@heraldcorp.com