* Yuan deposits rise to record high for 10th month
* Yuan deposits expected to rise in April
* Risk from possible China bank default seen as minimal
(Adds c.bank official comment, background, inspection)
By Christine Kim
SEOUL, April 11 Yuan deposits at banks in South
Korea rose to a record high for a 10th month in March, central
bank data showed on Friday, and are expected to keep rising as
higher yields in China continue to attract South Korean
Deposits denominated in the Chinese yuan rose
$270 million to a record $7.9 billion at the end of March while
foreign exchange deposits shrank last month.
The Bank of Korea data showed foreign exchange deposits at
foreign banks in the country rose $1.7 billion in March to $15
billion, mainly due to the increase in yuan holdings. However,
foreign exchange deposits at local banks fell $3.2 billion to
A central bank official said yuan deposits were expected to
maintain their rising streak in April after media reports said
the country's financial authorities decided foreign banks would
be allowed once again to manage yuan deposits "freely."
"In order for South Korea to be affected, there has to be a
problem in Chinese banks, but for that to happen, it means
something in China's economy has to go wrong, like a national
default," the official said.
"But chances of that happening are very low."
The Bank of Korea's new governor Lee Ju-yeol told his first
policy press conference on Thursday that the central bank was
not yet worried over economic conditions in China, but was
keeping a close eye on the situation there.
South Korean financial authorities in January had sent a
warning to Chinese banks located in South Korea to refrain from
increasing their yuan deposits after a rapid build-up of yuan
deposits last year sparked concern among regulators.
The decision to rescind the warning came after a rare
inspection of Chinese banks carried out by the Bank of Korea and
Financial Supervisory Service that ended on March 28. The
official results have yet to be made public, which could take
The yuan holdings account for only 15.4 percent of all
foreign currency deposits in South Korea as of end-March, and
the total pales in comparison with about $144 billion worth of
such deposits in Hong Kong at end-January or the $32 billion
held in Singapore at end-2013.
Meanwhile, foreign exchange deposits in all banks in South
Korea slipped $1.6 billion to $51.1 billion at end-March,
compared with $52.7 billion at end-February as companies paid
off import accounts and foreign currency debt.
(Editing by Jacqueline Wong)