Forex transactions at 3 banks probed

By Kim Tong-hyung

Authorities are looking into foreign exchange transactions at the local branch of the Australia and New Zealand Banking Group (ANZ). They will soon expand their probes to two other banks ― French bank Societe Generale (SG) and Hana Bank ― as they continue to examine whether banks are playing a role in the surge of the won.

The rising value of the local currency in recent months has been a concern for policymakers, holding firmly to a weak won policy to boost exports. The erosion of Korea’s trade income in the face of worsening global conditions, highlighted by a continuously toxic Europe, has upped the sense of urgency.

The Financial Supervisory Service and the Bank of Korea have been investigating ANZ since Monday and plans to expand their probe to the local unit of SG, and Hana. The investigations will take four business days for each bank, government officials said, and could be widened to more lenders.

The strengthened monitoring was expected as authorities confirmed plans next month to launch special inspections on bank trading of foreign exchange derivatives to guard against excessive borrowing and speculative money flow.

``The three banks were picked due to the pace of increase in their foreign exchange forward contract positions and other derivatives. Depending on the results, more banks could be inspected,’’ said a government source.

Forwards refer to agreements to buy or sell a financial or physical commodity at a given price on a specific future date. A currency forward contract is a private over-the-counter transaction executed on terms agreed between the parties.

In Korea, local banks are required to keep the proportion of such forward contracts to below 40 percent of their total equity capital, while the ceiling is 200 percent for foreign banks operating here.

Officials suspect the banks have increased the proportion of their forward contracts. They say this may result in undesirable levels of short-term foreign borrowing that ups the fears over speculative capital flow.

There are also worries among policymakers about a surge in the outflow of funds from the stock market driven by foreign investors selling high on their Korean assets.

The won has climbed more than 8 percent in the past five months, stoking uneasiness in a country that prefers keeping the value of its currency low to help its exporters.

Observers believe that the influx of liquidity triggered by the spending packages announced in rich world economies such as the United State and Europe has been pushing up the value of the won as investors recover their appetite for riskier assets.

The European Central Bank in September announced an unlimited government debt purchasing plan, while the U.S. Federal Reserve pledged to inject $40 billion monthly to purchase mortgage-backed securities to revitalize the economy.