Photo courtesy of Ori Song.

Korean banks’ in solid position to weather strong US dollar

Expectation of strong government support and solid foreign currency liquidity will support banks.

Korean banks should have no problems weathering the strong US dollar thanks to their strong foreign-currency liquidity and funding positions and their robust risk management systems, reports Moody’s Investors Service.

Korean commercial banks also have solid foreign-currency loan/deposit ratios. These factors make the banks less vulnerable to the risk of defaulting foreign-currency debt obligations during times of stress.

As of 11 October, the Korean won has sunk 19% year-to-date to a 13-year low against the US dollar.

ALSO READ: Asset quality of South Korea’s big banks to remain supported as interest rate rise 

Another advantage of Korean banks’ are the conservative prudential regulations set upon them by regulators, which have minimized potential mismatch risks between foreign-currency assets and liabilities. 

Korean banks have been required to fund their mid- to long-term foreign-currency assets only with mid- to long-term foreign-currency borrowings since 2010. Banks are also required to conduct a foreign-currency stress test every quarter.

Strong government support and support from the Bank of Korea should also help buoy banks in this time of stress, Moody’s said.

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