South Korean regulators will conduct an audit of currency derivatives of Credit Agricole SA, ING Groep NV, Standard Chartered First Bank Korea Ltd and Woori Bank amid concern about rising short-term external debt.
The South Korean Financial Supervisory Service will begin the inspection for local branches of Credit Agricole and ING for four days starting today and from May 2 for Woori and Standard Chartered First Bank, Doh Bo-eun, head of the foreign-exchange coordination team at the agency, said by telephone yesterday. The agency may probe more banks after inspecting the first four, Doh said.
The won halted its gains near the strongest level since 2008 after regulators on Thursday announced the plan for the audit, the second of its kind. The ministry said it will focus on who the banks’ clients are and their purpose for buying or selling non-deliverable forwards.
“There is sentiment in the market that the authorities may expand its defence of the won from rising too fast, with the announcement of the inspection,” said Song Kyung-hee, a currency analyst at Hana Institute of Finance in Seoul.
The won traded at 1,080.35 versus the US dollar as of the 3pm close in Seoul, according to data compiled by Bloomberg. Last week, gains halted at 1,078 per US dollar, matching the highest level on Sept. 8, 2008.
South Korean Finance Minister Yoon Jeung-hyun said on Friday that the government may decide on whether to strengthen the rules over foreign exchange derivatives contracts depending on the result of the inspection.
Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in US dollars. Banks often borrow foreign exchange to limit their exposure to currency swings when trading forward.
Calls to Credit Agricole in Hong Kong were not answered as the office is closed for a holiday. Jeroen Plag, country manager of ING Seoul branch, declined to comment on the inspection in an e-mail, citing company policy.
Standard Chartered First Bank spokeswoman Lee Ji-won declined to comment by telephone, as did Woori Bank spokesman Jung Hee-kyung.
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