Yuan deposits makes up 20% of foreign currency deposits in S.Korea

SEOUL - Chinese yuan deposits in the banking sector of South Korea surpassed a landmark 20 percent of the total foreign currency deposits for the first time in June, central bank data showed Friday.

Bank deposits denominated in the Chinese currency reached a fresh record high of $11.97 billion as of the end of June, up $0.64 billion from a month earlier, according to the Bank of Korea (BOK).

The figure accounted for 20.3 percent of 58.95 billion dollars in foreign currency deposits combined. The portion exceeded the milestone level for the first time since the BOK began compiling the data since September 2000.

In the past year, yuan deposits in the country surged around 50 times from 260 million dollars in June last year. In December last year, yuan deposits topped 10 percent of the total foreign currency deposits.

The surge came as local financial institutions, or high-yield investors, sought to deposit funds into Chinese banks in Seoul, which offer higher rates.

The one-year rate for deposits denominated in the South Korean won averaged 2.8 percent at the end of last year, lower than yuan deposit rate of 3.3 percent.

The growth trend of yuan deposits was expected to continue as China and South Korea agreed to launch the won-yuan direct trading market.

On Thursday, central banks of the two countries signed a memorandum of understanding (MOU) to designate a Chinese bank, which will offer clearance services for the Chinese yuan exchangeable directly for the South Korean won as early as this year.

The launch of the direct yuan-won trading market will reduce transaction costs and currency risks, further fueling demand for yuan deposits among South Korean residents.

The portion of US dollar deposits fell below 70 percent for the first time since September 2004. Bank deposits denominated in the US currency came in at $40.67 billion, or 69 percent of the total, as of end-June. It was down 1.42 billion US dollars from the prior month.

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