Bundles of US dollars at a Hana Bank branch in Seoul (Courtesy of News1)
South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, said on Friday it has agreed with foreign exchange authorities to increase the upper limit of currency swap deal from the current $35 billion to $50 billion to mitigate exchange risks.
The measure will strengthen the resiliency of NPS and the FX authorities – the Bank of Korea and the country’s finance ministry – to market volatilities given that the pension scheme’s overseas investment continues to rise, the central bank said on Friday.
NPS managed 1101.3 trillion won ($792.4 billion) in assets as of the end of March. Overseas assets make up around 55% of the assets under management.
The pension scheme and the authorities opened their currency swap line for the first time in 14 years in 2022, which allowed the pension fund to borrow up to $10 billion with maturities of six months or a year from BOK’s foreign exchange reserves in exchange for the Korean won. The swap line increased to $35 billion in April last year.
The currency swap increase will help the authorities mitigate imbalance of the forex market and NPS manage currency exchange risks for global investments, BOK added.
NPS strives to enhance its capabilities to hedge forex risks. The pension fund increased its forex hedge ratio to 10% for a year from December 2022 and extended the period by the end of this year.
By Byeong-Hwa Ryu
hwahwa@hankyung.com
Jihyun Kim edited this article.
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