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South Korean Banks Join Gov't to Halt Won's Slide vs Dollar

South Korea's major commercial banks are implementing new measures alongside government authorities to stabilize the weakening won, which recently resumed declines near 1,450 per U.S. dollar. Actions include banks offering incentives to sell dollars, cutting interest rates on foreign currency deposits, and halting aggressive marketing of dollar-based products. Financial regulators are meeting with banks and will review insurers' sales of popular dollar-denominated insurance products, which have surged recently. Authorities warn that speculative demand for these products is contributing to the won's depreciation.

Key Points: S. Korea Banks, Authorities Act to Curb Won Weakness

  • Won nears 1,450 per dollar
  • Banks cut USD deposit rates
  • Authorities curb aggressive FX marketing
  • Dollar insurance sales surge under scrutiny
3 min read

Banks join authorities to stem currency weakness in S. Korea

Major South Korean banks are implementing measures, including cutting dollar deposit rates, to support the won after it neared 1,450 per USD.

"We are considering various additional steps to support the government's exchange rate policy - KB Kookmin Bank official"

Seoul, Jan 18

South Korea's major commercial banks are stepping up efforts, alongside government foreign exchange authorities, to curb the local currency's recent weakness, offering incentives for customers to sell U.S. dollars and lowering interest rates on foreign-currency deposits, officials said on Sunday.

The won has hovered near the closely watched 1,450 won level against the U.S. dollar recently despite authorities' verbal intervention and policy measures, pressured by broad dollar strength, geopolitical risks and strong overseas equity investment by local investors.

The currency was quoted at 1,473.6 per dollar on Friday, resuming declines after a one-day rebound that ended a 10-session losing streak, reports Yonhap news agency.

Authorities have asked banks to take active steps to stabilise the foreign exchange market.

The Financial Supervisory Service (FSS) plans to meet major commercial banks Monday to urge restraint in marketing that promotes the U.S. dollar and other foreign currency deposits, according to industry sources.

Last week, officials from the Bank of Korea (BOK) met with local lenders to review required reserves on foreign currency deposits and related interest rate levels. The central bank has announced a temporary plan to pay interest on foreign currency required reserves to boost domestic dollar liquidity and support the won.

"We are holding promotional events for exporters and other customers converting foreign currency into the won and are considering various additional steps to support the government's exchange rate policy," a KB Kookmin Bank official said.

Woori Bank has cut the dollar interest rate on its foreign currency deposit product tailored for overseas travel to 0.1 percent from 1 percent, aiming to reduce incentives to hold dollar deposits.

The discussions follow a meeting earlier this month between the finance ministry and FX marketing managers at major banks, where the ministry called for curbs on banks' aggressive marketing practices, such as exchange rate discounts on dollar transactions, the sources said.

Insurers plan to review whether their controls related to the sale of foreign currency insurance products are working properly, officials said, after Financial Supervisory Service (FSS) Gov. Lee Chan-jin ordered regulators to guide financial firms to refrain from excessive marketing of foreign currency-based deposits and insurance products.

Sales of dollar-denominated insurance products, in which premiums and payouts are made in U.S. dollars, have soared in recent months. Authorities have warned that speculative demand for such products is one factor weighing on the won.

"Sales of dollar-denominated insurance products have surged, and related consumer complaints are being filed steadily," an FSS official said. "We plan to review the results of insurers' internal checks and conduct inspections, if necessary."

- IANS

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Reader Comments

R
Rohit P
Cutting dollar deposit rates to 0.1%! That's a strong move. Shows how serious they are. In India, we also see banks adjusting FCNR rates sometimes to manage flows. Global investors pulling money to the US is a headache for all emerging markets.
A
Aman W
The part about dollar-denominated insurance products is very relatable. In India too, there's a trend of looking at dollar investments for higher returns or as a hedge. But authorities are right to warn about speculative demand. It can create its own problems.
S
Sarah B
While I understand the need for stability, asking banks to curb marketing for dollar products feels a bit heavy-handed. Shouldn't customers have the freedom to choose where to put their money, especially if they're planning travel or education abroad? Just my two cents.
V
Vikram M
This is a classic central bank vs market forces battle. Verbal intervention, then policy measures. The won at 1473 to the dollar is quite weak. It reminds me of when the rupee touches 83+. It's a tough job for policymakers everywhere. 🇮🇳
K
Karthik V
Good to see coordination between the government, central bank, and commercial banks. In the end, a stable currency is good for the common person—keeps import prices and inflation in check. Hope they succeed.

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