Monday, June 1, 2020
Banks Enhancing Foreign Currency Financing Capabilities
In Preparation for Liquidity Crunch
Banks Enhancing Foreign Currency Financing Capabilities
  • By Yoon Young-sil
  • March 18, 2020, 08:57
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South Korean banks are strengthening risk management measures in preparation for a foreign currency liquidity crunch. 

South Korean banks are implementing more risk management measures with the global financial market fluctuating amid the spread of COVID-19.

As of the end of last month, Shinhan, KB Kookmin, Hana and Woori Banks’ foreign currency deposits totaled US$43.97 billion. The foreign currency deposits of the four banks and their overseas corporations added up to US$57 billion at the end of the third quarter of 2019. Foreign currency deposits are regarded as one of the most stable foreign currency financing means more reliable than borrowings and foreign currency bonds.

Recently, the banks increased the ratio of foreign currency deposits in their foreign currency financing structures. Specifically, the ratio reached 52.9 percent in the third quarter of 2019 whereas it stood at 35.2 percent in 2011. During the same period, the ratio of foreign currency borrowings fell from 45.4 percent to 29.1 percent. This means they reduced the potential impact of a deterioration in global foreign currency financing conditions.

In addition, they increased their committed line of credit to approximately US$3 billion. It can be defined as the right to be preferentially supplied with foreign financial institutions’ foreign currencies in the event of an emergency. A financial institution in a committed line of credit agreement must lend a foreign currency at a preset exchange rate and limit at the request of its counterpart.

Those forex liquidity management measures of the banks are expected to be helpful for South Korean exporters, which are going through difficulties with the won-dollar exchange rate spiking. The rate jumped 17.5 won on March 17, closing at over 1,240 won per U.S. dollar for the first time in about a decade.