UPDATE 1-S.Korea c.bank: Barclays unit inspection separate from Chinese banks

Thu Mar 20, 2014 3:36am EDT

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SEOUL, March 20 (Reuters) - South Korea's inspection of Barclays PLC's local unit was a routine, scheduled one and had nothing to do with the units of the three Chinese banks also under inspection, a central bank official said on Thursday.

South Korea is concerned about potential risks posed by the rapid rise in exposure to China's markets and its currency.

Yuan holdings by South Korean residents soared to an equivalent of $7.62 billion at the end of February, from $310 million six months earlier, as Chinese banks aggressively raise funds overseas in response to tighter credit at home.

"The inspection of the Barclays unit is being made according to a routine inspection schedule on foreign banks," said Cho Jeong-hwan, director of the Bank of Korea's Office of Bank Examination and Analysis.

Sources said on Wednesday the Barclays unit was being inspected together with units of Bank of China Ltd., Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp over a spike in yuan holdings.

The sources had declined to say why Barclays was included in the inspection while a media relations official at the bank refused to comment at all.

Cho said the inspection of the Chinese banks' units was not directly sparked by concerns about a spike in yuan-denominated deposits received by the units in South Korea and then invested mostly in China.

"It's true the yuan deposit issue is a big source of interest these days but the inspection is not only focused on the yuan deposits, but is also aimed at looking into their overall fund-raising and operations," Cho said.

The Bank of Korea and the Financial Supervisory Service (FSS) are jointly inspecting the units of the four foreign banks and the inspection is due to last until March 28, Cho said.

Of the five Chinese banks operating in South Korea, Bank of Communications Ltd. and Agricultural Bank of China Ltd. were excluded from the inspection due to the relatively small size of their operations, he said. (Reporting by Choonsik Yoo; Editing by Clarence Fernandez)

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