Korea turns up pressure on banks’ FX derivatives

Korea turns up pressure on banks’ FX derivatives

The Financial Supervisory Service said it would review banks’ exposure as the country becomes increasing concerned about the strengthening of the won.

In June, the FSS restricted the amount of FX derivatives banks based in Korea could hold. Local banks had to limit their forward positions – including all derivatives such as currency swaps and non-deliverable forwards – to 50% of their capital at the end of the preceding month.

Foreign banks must cap positions at 250% of capital, though the authorities plan to reduce this limit over time to the same level as the domestic banks are held to.

On October 5, FSS governor Kim Jong-chang said the regulator would conduct a second review of banks’ exposure, as the government becomes increasingly concerned over foreign capital inflows.

The FSS said it would review the exposure of Citigroup, HSBC, DBS, Morgan Stanley, BNP Paribas and JP Morgan to determine whether they were complying with the rules.

Kim promised to take “aggressive” action against any bank found breaking the rules.