Bank of Korea Achieves Record-High Profits Amidst Currency and Market Volatility
The Bank of Korea (BOK) has reported its largest-ever net profit, a remarkable achievement driven by a confluence of factors including currency exchange rate fluctuations and prevailing market conditions. In its recently released “2025 Annual Report,” the central bank disclosed a net profit of 15.3275 trillion won for the previous year. This figure represents a substantial increase of 7.5086 trillion won compared to the 7.8189 trillion won recorded in the preceding year, effectively doubling the previous record-high profit of 7.8638 trillion won set in 2021.
Lee Chang-heon, head of the Investment Planning Team at the Foreign Exchange Operations Department, explained the significant surge in profitability. “As the exchange rate exhibited considerable volatility last year, profits were generated through the Bank of Korea’s strategic buying and selling of dollars to maintain stability in the foreign exchange market,” he stated. “Furthermore, profits from bond trading also saw an uptick as interest rates experienced a decline throughout the year.” This latter point is crucial, as a decrease in interest rates typically leads to an increase in the market value of existing bonds.
Revenue Streams and the Impact of a Stronger Won
The Bank of Korea, unlike typical corporations, does not possess equity capital. Its primary revenue source stems from its substantial foreign exchange reserves, which are comprised of various foreign currency assets. When the Korean won appreciates against the U.S. dollar, the value of overseas investments, such as stocks and bonds, increases when converted back into won.
Last year, the interest income derived from securities—including stock dividends and bond interest—amounted to an impressive 12 trillion won. A significant 96% of this income originated from foreign currency-denominated securities. The yields from these assets naturally rise in correlation with an appreciating won. The average annual exchange rate for the past year stood at 1,422.0 won per dollar, marking an increase of 57.6 won from the previous year’s average of 1,364.4 won.
Fiscal Implications: A Boon for Government Finances
The Bank of Korea’s record-breaking profits arrive at a particularly opportune moment for the South Korean government, which is actively pursuing a supplementary budget. The central bank is subject to corporate taxes as stipulated by the Corporate Tax Act. For the past year, the BOK’s pre-tax profit reached 20.7650 trillion won, an increase of 10.3678 trillion won from the prior year. Consequently, the bank is expected to remit approximately 5.4375 trillion won in corporate taxes, representing 26% of its pre-tax profit.
This tax contribution is substantial and noteworthy. It is comparable to the 5.6 trillion won paid by SK Hynix, a company that experienced significant profit growth fueled by the semiconductor industry boom. In the previous year, the Bank of Korea ranked third among corporate taxpayers, behind SK Hynix and Hyundai Motor. However, with this year’s performance, its ranking has ascended by one position. To put this in further perspective, this tax payment is double that of Samsung Electronics, which paid 2.8 trillion won in corporate taxes.
The government had previously indicated its intention to avoid issuing new government bonds for the supplementary budget, opting instead to leverage corporate tax revenues from entities like the Bank of Korea. Given the central bank’s substantial profits, the prospect of these tax revenues bolstering the supplementary budget has become more likely.
Beyond taxes, an additional 10.7050 trillion won, representing the net profit after taxes and excluding reserves mandated by the Bank of Korea Act, will be transferred to the national treasury. When this amount is factored in, the total financial contribution from the Bank of Korea to the national coffers becomes the largest among all corporations.
Shifts in Foreign Exchange Reserves
In parallel with its financial performance, the Bank of Korea’s foreign exchange reserves have also seen notable changes. The sharp appreciation of the won in the latter half of last year prompted the central bank to deploy reserves to defend the currency’s value. This intervention led to an increase in the proportion of cash within the reserves, reaching its highest level since the BOK began publishing such statistics in 2007.
The bank reported that as of the end of last year, “cash-like assets” constituted 10.6% of its foreign exchange reserves, a rise of 2.6 percentage points from the previous year. While the Bank of Korea generates returns by investing its reserves in various assets like bonds and stocks, cash-like assets, akin to deposit accounts, yield significantly lower returns. This strategic increase in cash-like assets implies a commensurate decrease in the overall return rate on the foreign exchange reserves.
Currency and Asset Allocation within Reserves
Examining the currency composition of the reserves, the proportion of U.S. dollars decreased to 69.5%, falling below the 70% threshold for the first time in four years. Despite this decline, the dollar’s share in the BOK’s reserves remains relatively high when compared to global central banks, where the dollar typically accounts for around 50% of foreign exchange reserves.
By asset type, government bonds, such as U.S. Treasuries, formed the largest segment at 47.8%, representing nearly half of the total reserves. This was followed by government agency bonds (8.5%), corporate bonds (10.9%), asset-backed securities (9.6%), and stocks (10.0%). While government and government agency bonds saw a slight increase in their proportion, the other asset classes experienced a decrease.
Estimating Reserve Returns and Future Investments
Although the Bank of Korea publicly discloses the asset composition of its foreign exchange reserves, it does not reveal the specific return rates. However, based on the relatively stable proportion of invested assets, it is possible to estimate last year’s return rate. Calculations based on assets held at the end of 2024 suggest an estimated return rate of approximately 10% on foreign exchange reserves. It is important to note that this figure encompasses both realized gains from securities trading, dividends, and interest, as well as unrealized gains derived from asset valuation adjustments.
The South Korean government has committed, as part of a tariff agreement with the United States, to invest up to $20 billion annually in U.S. assets. These investments are planned to be financed through earnings generated from the Bank of Korea’s foreign exchange reserves. Nam Seok-won, head of the Budget and Accounting Team at the BOK, indicated that the profits from securities interest and trading, which amounted to approximately 21 trillion won last year, could be utilized for these U.S. investments after deducting associated costs. He further clarified that the specific modalities of these investments would be finalized through discussions with the government. At the exchange rate prevailing on the 27th, 21 trillion won translates to roughly $13.9 billion.
