ID :
22596
Sat, 10/04/2008 - 09:03
Auther :
Shortlink :
http://m.oananews.org//node/22596
The shortlink copeid
(EDITORIAL from the Korea Times on Oct. 4)
Negative outlook
Local banks face difficulties amid US crisis
Korean banks are facing difficulty due to higher funding costs following the Wall Street meltdown and its spreading effects on global financial markets. A slowdown in the Korean economy is also making things go from bad to worse. In short, a gloomy outlook prevails over the banking industry.
Against this backdrop, Moody's Investors Service has changed the financial
strength rating of the big-four Korean banks ??? Kookmin, Woori, Shinhan and Hana
??? to negative from stable. The action reflected the anticipated deterioration
in the creditworthiness of the banks due to intensifying stresses from the global
credit crisis and the weakening domestic economy.
It is necessary for local banks to humbly accept Moody's downward revision as a
warning against a potential credit crisis. Though the rating action is unlikely
to immediately affect their credit ratings, the banks should not ignore the
ramification of the negative status as they struggle to contain the fallout from
the U.S. subprime housing credit turbulence and its contagious effects.
The local currency is under stronger pressure for devaluation against the U.S.
dollar, especially when foreign portfolio investors are cashing out from the
Korean market. The government has decided to release $10 billion into the market
in a desperate effort to ease the acute lack of foreign currency. It also plans
to supply $5 billion to foreign currency-strapped small and medium enterprises
through the state-run Export-Import Bank of Korea.
Along with the foreign currency shortage, Korean banks are experiencing hardship
in local currency liquidity. Six local banks ??? the four major banks, Korea
Exchange Bank (KEB) and the Industrial Bank of Korea ??? attracted 7.5 trillion
won ($6.2 billion) in combined deposits last month, down 35 percent from 11.5
trillion won ($9.5 billion) in August. Therefore, a credit pinch is inevitable.
The banks need more funds to roll over matured loans to cash-strapped
construction firms, extend about 20 trillion won in project financing to
businesses, and execute the government policy of providing more credit to small
and medium enterprises.
The problem seems to stem from local banks' misguided policy of enlarging their
size by excessively extending their loans to households and small businesses. In
the past several years, the banks have focused on increasing mortgage loans
riding the wave of property speculation without paying much heed to their
creditworthiness. Then, the overheated housing market has lost steam following
the U.S. subprime mortgage crisis. This aggravates the financial situation of
building companies and raises concerns that banks might suffer from growing bad
loans.
A further economic slowdown is feared to increase the downside risks for banks.
Thus, there are growing possibilities that local banks will face worsening
creditworthiness and declining profitability. It is imperative for them to take
bolder measures to prevent a possible crisis turning into reality. The government
is also required to strengthen its regulation and supervision to avoid
unpredictable consequences.
(END)
Local banks face difficulties amid US crisis
Korean banks are facing difficulty due to higher funding costs following the Wall Street meltdown and its spreading effects on global financial markets. A slowdown in the Korean economy is also making things go from bad to worse. In short, a gloomy outlook prevails over the banking industry.
Against this backdrop, Moody's Investors Service has changed the financial
strength rating of the big-four Korean banks ??? Kookmin, Woori, Shinhan and Hana
??? to negative from stable. The action reflected the anticipated deterioration
in the creditworthiness of the banks due to intensifying stresses from the global
credit crisis and the weakening domestic economy.
It is necessary for local banks to humbly accept Moody's downward revision as a
warning against a potential credit crisis. Though the rating action is unlikely
to immediately affect their credit ratings, the banks should not ignore the
ramification of the negative status as they struggle to contain the fallout from
the U.S. subprime housing credit turbulence and its contagious effects.
The local currency is under stronger pressure for devaluation against the U.S.
dollar, especially when foreign portfolio investors are cashing out from the
Korean market. The government has decided to release $10 billion into the market
in a desperate effort to ease the acute lack of foreign currency. It also plans
to supply $5 billion to foreign currency-strapped small and medium enterprises
through the state-run Export-Import Bank of Korea.
Along with the foreign currency shortage, Korean banks are experiencing hardship
in local currency liquidity. Six local banks ??? the four major banks, Korea
Exchange Bank (KEB) and the Industrial Bank of Korea ??? attracted 7.5 trillion
won ($6.2 billion) in combined deposits last month, down 35 percent from 11.5
trillion won ($9.5 billion) in August. Therefore, a credit pinch is inevitable.
The banks need more funds to roll over matured loans to cash-strapped
construction firms, extend about 20 trillion won in project financing to
businesses, and execute the government policy of providing more credit to small
and medium enterprises.
The problem seems to stem from local banks' misguided policy of enlarging their
size by excessively extending their loans to households and small businesses. In
the past several years, the banks have focused on increasing mortgage loans
riding the wave of property speculation without paying much heed to their
creditworthiness. Then, the overheated housing market has lost steam following
the U.S. subprime mortgage crisis. This aggravates the financial situation of
building companies and raises concerns that banks might suffer from growing bad
loans.
A further economic slowdown is feared to increase the downside risks for banks.
Thus, there are growing possibilities that local banks will face worsening
creditworthiness and declining profitability. It is imperative for them to take
bolder measures to prevent a possible crisis turning into reality. The government
is also required to strengthen its regulation and supervision to avoid
unpredictable consequences.
(END)
