Korea FX authorities, NPS raise currency swap limit to $50 bn

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 lines 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 volatility, 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 to swap out for Korean won. The swap line increased to $35 billion in April last year.

The currency swap limit increase will help the authorities mitigate imbalances in the forex market and help NPS manage currency exchange risk 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 until the end of this year.

Write to Byeong-Hwa Ryu at hwahwa@hankyung.com

Jihyun Kim edited this article.