Seoul: South Korea's major commercial banks are intensifying their efforts, in collaboration with government foreign exchange authorities, to counteract the recent weakening of the local currency. Measures include offering incentives for customers to sell U.S. dollars and reducing interest rates on foreign-currency deposits, officials confirmed on Sunday.
According to Yonhap News Agency, the South Korean won has been trading near the critical 1,450 level against the U.S. dollar. Despite efforts from authorities, including verbal interventions and policy measures, the currency continues to be pressured by the strong U.S. dollar, geopolitical tensions, and significant overseas equity investments by local investors. Recently, the won was quoted at 1,473.6 per dollar, resuming its decline after a brief rebound that interrupted a 10-day losing streak.
Authorities have urged banks to proactively stabilize the foreign exchange market. The Financial Supervisory Service (FSS) is set to meet with major commercial banks on Monday to encourage moderation in marketing that promotes U.S. dollar and foreign currency deposits, as per industry sources.
Last week, representatives from the Bank of Korea (BOK) convened with local lenders to examine required reserves on foreign currency deposits and associated interest rate levels. In response, the central bank has unveiled a temporary strategy to pay interest on foreign currency required reserves to enhance domestic dollar liquidity and support the won.
"We are organizing promotional events for exporters and other clients converting foreign currency into the won and are exploring additional measures to bolster the government's exchange rate policy," stated a KB Kookmin Bank official.
In a bid to reduce the allure of holding dollar deposits, Woori Bank has slashed the dollar interest rate on its foreign currency deposit product for overseas travel from 1 percent to 0.1 percent.
These discussions follow a prior meeting earlier this month between the finance ministry and FX marketing managers from major banks, during which the ministry advocated for the restriction of aggressive marketing practices, such as exchange rate discounts on dollar transactions, according to sources.
Insurance companies are also set to assess the adequacy of their control mechanisms related to the sale of foreign currency insurance products. This follows an order from FSS Governor Lee Chan-jin, urging regulators to guide financial firms away from excessive marketing of foreign currency-based deposits and insurance products.
The sale of dollar-denominated insurance products, with premiums and payouts conducted in U.S. dollars, has surged in recent months. Authorities have cautioned that speculative demand for these products is contributing to the pressure on the won.
"Sales of dollar-denominated insurance products have increased, and consumer complaints related to these are being consistently filed," an FSS official noted. "We plan to evaluate the outcomes of insurers' internal reviews and conduct inspections if necessary."