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SKorea to guarantee banks' foreign currency debts

SKorea to guarantee banks' foreign currency debts

South Korea announced measures Sunday to shore up its banks by guaranteeing their external debt and pumping more money into the financial system amid the global credit crisis.
The government said it will provide up to US$100 billion to secure banks' maturing foreign currency debt for three years on loans taken out from Oct. 20 this year until June 30, 2009.
The announcement came as analysts have questioned South Korean banks' ability to acquire dollars to pay off maturing foreign loans amid the global credit crunch.
Standard & Poor's Ratings Services said last week that it may downgrade its credit ratings for some of South Korea's biggest banks, citing concerns over their foreign currency funding.
"The government and the Bank of Korea together will further provide enough additional dollar liquidity to the bank sector," Minister of Strategy and Finance Kang Man-soo told reporters.
Kang, Financial Services Commission Chairman Jun Kwang-woo and Bank of Korea Gov. Lee Seong-tae made the announcement at a joint news conference.
The government and Bank of Korea will also provide additional liquidity equivalent to US$30 billion to the banking sector by utilizing foreign exchange reserves, the three officials said in a statement.
The measures require approval by the National Assembly. Until that can be secured, either the Korea Development Bank or Korea Eximbank will provide the guarantees beginning Monday, they said.
South Korean banks' foreign debt reaching maturity by the end of June 2009 is estimated at about US$80 billion, the statement said. It did not say when that debt was taken out.
The officials also announced other steps, including tax incentives for investors, but stopped short of wider measures taken in some other countries.
"At the moment, it seems that recapitalization of financial institutions or expansion of deposit guarantees are not necessary," the statement said.
The government has repeatedly said that there are no problems with the banking system or financial sector and that it has more than enough firepower in the form of its US$240 billion in foreign currency reserves _ the world's sixth largest _ to see the country through the global crisis.
Still, Kang said Sunday the government needed to act swiftly to avoid any potential problems.
"If we take our time in (the) global financial market, our banks could be discriminated (against) or could be in a difficult situation," Kang said. The announcement, he added, was to ensure that the country will not end up "in that difficult position."
The government also reiterated its stance that fears about South Korea being vulnerable to the global crisis were overblown.
"Korea's real economy and its financial sector are sound," the statement said.
South Korea's benchmark stock index has fallen 38 percent in 2008, while the country's currency, the won, has declined almost 30 percent this year against the dollar.
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APTN producer Hyun-ah Kim contributed to this report.


Updated : 2021-10-27 18:19 GMT+08:00