South Korea's Ministry of Economy and Finance and the Bank of Korea have officially announced the selection of seven banks as the leading foreign exchange (FX) banks for the USD/KRW market for 2025. Newly appointed among these banks are NH Bank and SC First Bank, taking the places of last year's incumbents, JP Morgan Chase and Credit Agricole, both of which have now been excluded from the esteemed list.
The seven designated foreign exchange banks for 2025 include KB Bank, NH Bank, Industrial Bank of Korea, Shinhan Bank, Woori Bank, Hana Bank, and SC First Bank. This decision, disclosed on January 30, reinforces the regulatory authority's commitment to enhancing the financial stability and operational standards within the South Korean foreign exchange sector.
Becoming one of these FX leading banks provides significant benefits. Institutions appointed to this designation stand to receive substantial reductions on what is colloquially known as the "bank tax"—the foreign exchange stability levy—by as much as 60%. Such opportunities are attractive incentives for banks to uphold sound financial practices and strengthen their positions within the market.
According to officials from the Ministry and the Bank of Korea, the criteria for selection involve rigorous evaluations, including the banks' financial soundness and credit ratings, particularly focusing on their performance concerning spot transactions and foreign exchange swaps involving the Korean won and the US dollar.
Notably, the selection process this year introduced new metrics aimed at promoting trading activity during the evening. The government has established weighted measures for transaction times, offering double weight for trades executed between 6 PM and 10 PM and triple weight for trades completed between 10 PM and 2 AM. This strategy aims to encourage banks to be more active during these extended trading hours—which were previously adjusted from the market’s closing time of 3:30 PM to the following day at 2 AM.
Such changes are not merely regulatory adjustments but reflect broader reforms initiated over the past year to stabilize the foreign exchange market, following significant fluctuations and challenges. The adjustments were discussed at the Foreign Exchange Stability Council, which is overseen by the Vice Minister of Economy.
Looking forward, officials from the Ministry and the Bank of Korea considered additional changes to the foreign exchange stability levy exemption for these leading banks. Starting next year, deductions from the levy will not just rely on the volume of bilateral transactions, but will instead take market-making activities—defined through the prices banks are willing to offer for trades—into account. The threshold for these deductions is expected to increase as well,, changing from 10% to over 15% of the amount subject to levies. These amendments were recently proposed and are set to be implemented to align with the recommendations aimed at safeguarding the stability and liquidity of the foreign exchange market.
Officials have emphasized the importance of the newly designated FX leading banks participating vigorously in market-making and overnight trading activities. They believe this active participation is pivotal for enhancing the breadth and depth of South Korea’s foreign exchange markets.
These recent changes and selections resonate with the government’s aspirations to centralize and strengthen South Korea's standing as a significant player in the international finance ecosystem. With proactive policies and supportive measures, the government aims to stabilize and invigorate market dynamics, which may lead to increased investor confidence and financial security.