UPDATE 1-S.Korea to inspect more banks on FX derivatives

* Inspection related to earlier announced fwd trade limits

* Citibank Korea, HSBC’s branch added to the inspection list

* Separate from expected measures to deal with fund inflows
(Adds banks in inspection, background, market reaction)

SEOUL, Nov 5 (BestGrowthStock) – South Korea on Friday kept up the
rhetoric on its efforts to minimise the impact from dollar
inflows after the U.S. central bank unleashed a fresh asset
buying plan, despite criticism from emerging market countries.

The host of next week’s G20 summit will expand its inspection
of foreign exchange derivative trades by banks to include more
institutions, two of the country’s top financial authorities
jointly said in a joint statement.

The Bank of Korea and the Financial Supervisory Service (FSS)
have just added Citibank Korea, a unit of Citigroup (C.N: ), and
HSBC’s (HSBA.L: ) Korean branch, to their inspection list, on top
of eight other banks. The inspections are due from Nov. 15 to 23.

Sources said the branches of DBS (DBSM.SI: ), Morgan Stanley
(MS.N: ), BNP Paribas (BNPP.PA: ) and JP Morgan (JPM.N: ) and Korea
Exchange Bank (004940.KS: ), have either been inspected or were
being inspected for their currency derivative trades.

For the three other banks — Bank of America (BAC.N: ) and
Australia and New Zealand Bank (ANZ.AX: ) and Shinhan Bank, the
authorities have yet to start inspections.

The checks are related to the currency controls announced in
June that were linked to short-term foreign debt. [ID:nTOE65C00R]
The measures took effect in October after a three-month grace
period.

But the regulatory move is separate from the expected steps
aimed at curbing inflows into South Korea, which analysts said
might be the reintroduction of withholding taxes on foreign bond
holdings, further limits on forward FX positions at foreign bank
branches or taxations on short-term offshore borrowing.

On Thursday, the finance ministry said in a statement the
government would “aggressively” consider taking measures to curb
fund inflows, and the central bank in a separate report called
for efforts to contain excessive inward foreign portfolio
investment.

The joint statement by the Bank of Korea and the FSS came
hours after a regulatory official said that the country was
closely watching “improper” foreign exchange positions aimed at
taking advantage of the strengthening won.

He said the country planned to impose heavy punishment on
banks found breaking regulations covering forward trading.
[ID:nTOE6A400I]

The won (KRW=: ) gave up most of its earlier gains to trade at
1,107.2 against the dollar as of 0532 GMT, weighed down by the
regulatory concern.

Treasury futures’ December contract (KTBc1: ) extended its
decline by 0.18 points after the joint statement.
(Reporting by Kim Yeonhee and Cheon Jong-woo; Editing by Yoo
Choonsik and Jacqueline Wong)

UPDATE 1-S.Korea to inspect more banks on FX derivatives