Declining Demand
Foreign currency borrowing has declined by US$2.7 billion (about 3.15 trillion won) on-year, thanks to the depreciation of the value of the Japanese yen and reduced demand for dollar loans.
The Financial Supervisory Service (FSS) announced on March 30 that according to “The 2015 foreign currency borrowing trend by domestic residents,” the amount of yen borrowed by current domestic residents late last year was US$3.14 billion, a reduction of US$1.83 billion from US$4.97 billion in 2014. Especially when compared to the amount in late 2013, which is estimated at US$7.61 billion, the amount has been almost cut in half.
With the exchange rate of the yen declining, the people who took out loans are paying them back. Moreover, the slowdown of the economy has also undermined the demand for borrowing yen.
While not as dramatic as in the yen’s case, nevertheless the U.S. dollar also saw a decline in demand. As of late last year, the borrowing of dollars by domestic residents amounted to US$16.3 billion, declining by US$940 million from US$17.25 billion in late 2014. Reduced cases of domestic importers buying foreign import goods using dollars also resulted in reduced cases of making new dollar loans. Thanks to a heightened dollar evaluation late last year, those who borrowed dollars suffered foreign-exchange losses of approximately 420 billion won (US$367 million).
As of late last year, the average rate for dollar loans marked 2.76 percent, raised by 0.05 percent from a year ago, whereas that of yen loans declined 0.24 percent, marking 2.67 percent. An FSS official explained, "The dollar borrowers have come under increasing burdens from the interest rate hike by the Federal Reserve and the heightened U.S. dollar foreign exchange rate.”
At the end of the last year, total foreign currency loans by domestic residents marked US$19.76 billion, which was a 12.3 percent reduction from US$2.78 billion at the end of 2014.