S Korean bank borrows first RMB fund from swap deal

The Korea Exchange Bank (KEB) borrowed the first Reminbi (RMB) fund that came from the currency swap deal between Seoul and Beijing, heralding a brisk trade settlement with the Chinese currency, an official statement said Sunday.

The No. 5 commercial bank of South Korea borrowed 62 million yuan from the Bank of Korea (BOK) to lend the funds to domestic trade companies for the settlement purpose, the central bank and the finance ministry said in a joint statement.

The KEB became the first lender in Seoul that borrowed the RMB fund from the yuan-won swap deal reached between the BOK and the People's Bank of China (PBOC). Under the deal, South Korean firms are able to borrow the yuan fund for trade settlement from local banks, to which the BOK will lend the RMB funds secured through the currency swap line with the PBOC.

"Borrowing costs for the Chinese yuan are higher than those for the U.S. dollar funds. But the yuan fund from the yuan-won swap line will reduce currency risks and help local trade firms diversify their trade settlement currency," said Eun Ho-sung, head of the BOK's international financial stability team.

The authorities forecast such yuan-lending services would decrease costs for trade between Seoul and Beijing by offering stable settlement tools, saying that the services would ease dependence on the U.S. dollar and external vulnerabilities.