South Korean financial authorities are investigating three Chinese banks and Barclays Plc. over a surge in yuan-denominated deposits in the country, the Wall Street Journal reported Wednesday, citing two people familiar with the situation. Bank of Korea and the Financial Supervisory Service began a two-week inspection of Bank of China Ltd., Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp. on March 17, Lee Jong-uk, an FSS director in charge of the investigation, was quoted as saying. The joint probe, made at the request of the South Korean central bank, also covers Barclays, the report said. Some financial officials in Seoul have been wary of the surge in yuan-denominated deposits which they fear may increase their country’s exposure to foreign exchange volatility in case of rapid capital outflows. The Chinese banks might redirect yuan deposits in South Korea to fund their business in China, raising the risk the money might not be returned to Korean depositors, the report said.
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