(2nd LD) S. Korean banks need to ensure enough cash: minister

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SEOUL, Oct. 6 (Yonhap) -- South Korean banks must take active measures, including the sale of their foreign assets, to stem any shortfalls in liquidity, the nation's top economic policymaker said Monday.

"The government plans to help facilitate liquidity flows, but financial
institutions need to do their part," Finance Minister Kang Man-soo told a meeting
with the heads of local banks, adding that it would take considerable time for
the global credit crunch to die down.
Kang called on local lenders to sell off overseas assets and stock holdings to
secure liquidity, and to transfer foreign currency deposits held in overseas
banks back into the country to increase domestic foreign currency reserves.
South Korea's currency market has been suffering from a dollar shortage, as banks
and companies are rushing to the safer greenback on concerns over a financial
crisis sparked by the collapse of investment bank Lehman Brothers Holdings Inc.
The Finance Ministry recently announced that it will inject a total of $10
billion into the nation's won-dollar swap market to provide liquidity amid
tightening credit conditions. The government said Thursday it will also supply $5
billion in foreign currency to small and medium-sized exporters starting this
week through financial trade deals.
Banks must not withhold money from trading companies and must also refrain from
holding on to excessive amounts of foreign reserves, which can distort the
market, he said, adding that the government will continue to provide foreign
exchange liquidity by using the country's foreign exchang reserves.
Despite the government's pledge, the local currency was trading at 1,247.70 won
as of 9:31 a.m., down 24.20 won from the previous session amid persistent jitters
in the U.S. financial market.
According to South Korea's central bank, the country's foreign exchange reserves
reached $239.7 billion as of the end of September, down $3.53 billion from a
month earlier and marking a decline for the sixth straight month. A fall in
foreign reserves came mainly as foreign exchange authorities unloaded part of
their dollar holdings to prop up the weakening local currency in a move to fight
inflation.
Meanwhile, South Korea's top financial regulator urged local banks not to swiftly
withdraw their loans from smaller companies facing liquidity problems amid a
slowing economy.
"When smaller companies with growth potential have trouble in facing temporary
liquidity, banks need to support them," said Jun Kwang-woo, chairman of the
Financial Services Commission (FSC).
Jun's remarks came as South Korean small and medium enterprises (SMEs) have been
hit by sluggish domestic demand, higher raw material costs and a volatile foreign
exchange rate.
The watchdog said last week that the government will extend liquidity of about
4.3 trillion won ($3.52 billion) to smaller firms which are suffering from cash
shortages and losses related to currency option contracts.
"The government also plans to aggressively secure foreign currency liquidity
through state-run banks like Korea Development Bank (KDB) and the Industrial Bank
of Korea," Jun said.
South Korea will seek for state-controlled lenders to raise funds overseas
through syndicate loans and will consider drawing foreign capital in the process
of their privatization.
South Korea plans to start reducing its 100 percent stake in KDB next year and
fully privatize it by 2012 through share and private sales.