Preference for Foreign Currency
Foreign currency deposit products are gaining increasing popularity as more and more investors are expecting that the U.S. dollar will appreciate with time. In addition, the tapering by the Fed is coming to a close before the end of this year, to add to the expectations for foreign exchange gains.
According to industry sources, the foreign currency deposit balance at KB Kookmin Bank, Shinhan Bank, Woori Bank, Hana Bank, the Korea Exchange Bank, and the Industrial Bank of Korea increased by US$2.812 billion from the preceding month to US$36.998 billion combined as of the end of August. Also, the balance of the residents in Korea, which includes foreigners staying in Korea for over six months and foreign enterprises as well as locals, went up by US$6.15 billion to US$68.6 billion, which is a record high, during the same period according to the Bank of Korea’s data. The U.S. dollar-denominated deposit accounted for 61.4 percent of it, increasing by US$1.82 billion in a month.
“Some wealthy investors are putting lots of money in their foreign currency accounts for long-term investment with the U.S. dollar showing signs of appreciation these days,” said a local bank manager, adding, “Meanwhile, small investors are repeating transactions every time the foreign exchange rate edges up.”
Investors are focusing on yuan deposits, too. It was equivalent to 29.1 percent of the US$68.6 billion at the end of last month. The balance of yuan-denominated deposits skyrocketed from US$310 million (0.7 percent) to US$6.67 billion (over 10 percent) between late August and December last year. In June 2014, the amount jumped to US$11.97 billion (over 20 percent) and exceeded 30 percent in August.
This is because Chinese banks recently raised their deposit rates by 0.5 percentage points, while Korean banks are providing an annual interest rate of slightly over 2 percent for one-year time deposits, which is at least one percentage point lower than what is offered by Chinese banks.