South Korean banks will avoid a credit squeeze even if Japanese lenders seek repayment of loans next month, the country's financial regulator said, dpa reported.
South Korean banks have $1.98 billion of debt owed to Japanese companies maturing in the first quarter, an amount too small to trigger a funding crisis, the watchdog said. An index tracking 54 South Korean financial companies erased losses after the report, climbing as much as 1.6 percent in Seoul.
"The possibility of the March crisis materializing is very little at this stage," the Financial Services Commission said today in a report to the nation's parliament.
South Korea's central bank and the country's bank lobby have sought in the past week to defuse speculation that lenders will struggle to repay overseas loans. Korean banks' demand for dollars is decreasing and their monthly payments on foreign debt has halved from the final quarter of 2008, a central bank official said Feb. 18.
South Korea's won traded near the lowest level in more than a decade today amid deepening concerns Korean lenders will have trouble securing dollars if Japanese finance companies close their books in March and seek repayment of loans. The won has lost 14 percent against the yen this year.
"There are renewed concerns of banks failing to redeem their bonds," Thio Chin Loo, senior currency strategist at BNP Paribas in Singapore, said in an interview Feb. 20. "From the weakened won, Korean banks can see some problems refinancing their obligations."
More than half, or 57 percent, of Korean banks' total debt owed to Japanese companies matures after 2010, the regulator said. Korean banks have $24.5 billion of foreign-currency debt maturing between now and the end of 2009, $10.4 billion of which falls due this month and next, the Bank of Korea said last week.
South Korea is ready to support its falling currency, Finance Minister Yoon Jeung Hyun said yesterday in an interview from Phuket, Thailand. "Intervention is necessary" in some situations, he said, adding he couldn't rule out using the country's foreign reserves of almost $202 billion to arrest the won's slide.
The currency, the region's worst performer, plunged 17 percent against the dollar this year as the export-driven economy is headed for its first recession in more than a decade on falling demand from Europe, the U.S. and China. The government is preparing to replenish banks' capital after nonperforming loans almost doubled last year.
Lenders will be able to access a 20 trillion won ($13 billion) recapitalization fund starting in March, the regulator said. The government is pooling the fund from the central bank, state-run Korea Development Bank and private investors to be used for buying banks' preferred shares and subordinated debt.
The government is close to setting limits for how much individual banks can draw from the fund, from which most Korean lenders are expected to be given a "credit line," Shin Dong Kyu, chairman of the Korea Federation of Banks, said last week. Woori Finance Holdings Co.'s main Woori Bank unit has said it plans to raise more than 2 trillion won from the recapitalization fund.
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