Foreign currency deposits at South Korean banks fell sharply this month on investors' bet that the local currency's recent weakness to the dollar would be short-lived, industry data showed Friday.

   Foreign currency-denominated deposits at the six major banks stood at US$22.4 billion as of Tuesday, down $1.8 billion from the end of July, according to industry data.

   The fall in the deposits during the first nine days of August is nearly equivalent to July's rise in deposits worth $1.96 billion, data showed. In June, bank foreign currency-denominated deposits grew by $318 million.

   Market watchers said the drop in the deposits mainly came from depositors' belief that the local currency's recent losing streak is likely to reverse in the near term, making them rush to withdraw part of the money.

   The won's fall usually prompts people to increase savings to lock in profits as it raises the value of won-conversion.

   The Korean currency has lost more than 2.5 percent against the U.S. dollar since Aug. 2 when the global financial markets were rattled by recession woes and the downgrade of the U.S. credit ratings by Standard and Poor's.

   Despite the unstable stock markets, the country's sustained exports and ample foreign currency liquidity would put upward pressure on the won, they added.

   Meanwhile, foreign currency denominated loans rose during the first nine days of this month despite the won's weakness. Such lending reached $18.6 billion as of Tuesday, up $360 million from the end of July, data showed.

Source; Yonhap News (August 12, 2011)