Over-the-Counter Derivatives Trading Volume Increased by 35% Last Year... Impact of Rising Interest Rate and Exchange Rate Volatility
Due to increased volatility in interest rates and exchange rates, demand for hedging has risen, leading to a significant increase in the scale of over-the-counter (OTC) derivatives transactions by domestic financial companies last year.
According to the Financial Supervisory Service on the 15th, the scale of OTC derivatives transactions by domestic financial companies last year reached KRW 2,454.8 trillion, a 35.3% increase compared to the previous year.
By product, currency-related transactions accounted for the largest share at KRW 1,073.0 trillion, representing 69.4%. This was an increase of KRW 325.4 trillion (23.6%) compared to the previous year. During the same period, the scale of interest rate-related OTC derivatives transactions rose from KRW 4,117 trillion to KRW 7,206 trillion, an increase of about 75%.
The scale of equity-related OTC derivatives transactions increased by 9.8%, from KRW 19.4 trillion to KRW 21.3 trillion, while credit-related OTC derivatives grew by 167.8%, from KRW 1.8 trillion to KRW 4.82 trillion.
By financial sector, banks accounted for the largest share of transactions at KRW 1,813.4 trillion, representing 73.9%. This was followed by securities at KRW 504.0 trillion (20.5%) and trusts at KRW 116.7 trillion (4.8%).
The Financial Supervisory Service explained that the increase in overall OTC derivatives transaction volume was driven by the rise in interest rate swaps (KRW 306.3 trillion) and currency forwards (KRW 283.3 trillion) due to increased hedging demand from financial companies amid interest rate and exchange rate volatility last year.
At the end of last year, the total outstanding balance of OTC derivatives was KRW 1,221.0 trillion, an increase of KRW 90.5 trillion (8.0%) compared to the previous year.
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By product, interest rate-related transactions accounted for the largest share of outstanding balances at KRW 755.6 trillion (61.9%), followed by currency-related at KRW 442.5 trillion (36.2%) and credit-related at KRW 9.5 trillion (0.8%). By financial sector, banks held the largest share of outstanding balances at KRW 968.3 trillion (79.3%), followed by securities at KRW 207.2 trillion (17.0%) and insurance at KRW 23.4 trillion (1.9%).
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