Banks’ foreign currency liquidity is stable but caution is needed (Ministry of Finance)

The Ministry of Economy and Finance at the Sejong Government Complex (The Korea Herald)

SEJONG — Financial policymakers said on Thursday that banks’ foreign currency liquidity conditions remained stable, but raised concerns that the won’s weakness against the U.S. dollar could undermine the strength of corporate assets. financial.

The remarks were made during a meeting with senior officials from the Ministry of Finance, the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service, which was held at the Korea Center for International Finance. in Seoul.

At the meeting, First Deputy Minister of Economy and Finance Bang Ki-sun said market uncertainty had increased as a result of external risks, stressing the importance of taking preventive measures against risks through close collaboration.

In particular, the Ministry of Finance said that “participants discussed the possibility that local financial firms may face (asset) soundness risks due to prolonged exchange rate (won-dollar) volatility. “.

Commercial banks have been in a favorable foreign-currency liquidity position, despite drastic hikes in benchmark interest rates from the U.S. Federal Reserve, participants said.

Nevertheless, in light of high external risks, they decided to look closely at the conditions for banks to secure foreign currencies.

Dollar prices have climbed around 130 won over the past three months to trade around 1,430 won. Over the past year, greenback prices have jumped 250 won, or 21.1 percent, from the 1,180 won range in October 2021.

The weakness of the won could be attributed to the current situation where the base rate in the United States exceeds that of Korea by 3 to 3.25% against 3% per year.

A year earlier, the US rate had remained at 0-0.25% while the benchmark rate in Korea was at 0.75%.

The Fed is widely expected to deliver another rate hike at the Federal Open Market Committee meeting, scheduled for Nov. 1-2. In Korea, the BOK’s monetary policy board will set the next level of interest on November 24.

The strong dollar has led to continued instability in consumer prices in the local market due to soaring international commodity prices.

High import prices have also fueled the country’s current trade deficit.

Meanwhile, research analysts as well as policymakers have downplayed the possibility that the banking sector as a whole is facing critical risks as it did during the 1997 Asian currency crisis.

They pointed out that major currencies, such as the euro and the Japanese yen, have also lost ground against the dollar this year.

By Kim Yon-se ([email protected])