S. Korean banks' short-term foreign debts soar

SEOUL, Oct. 12 (Yonhap) -- South Korean banks' short-term foreign debts rose at
the fastest pace in eight years, the central bank said Sunday, leading to a
shortage of dollar liquidity in the local currency market.
At the end of June, domestic banks held US$56.86 billion in short-term foreign
debts, up 41.7 percent from a year earlier, according to the Bank of Korea.
Short-term debts refer to loans which mature within one year.
The growth rate is the highest since the 42.5 percent recorded in 2000, and local
banks' short-term borrowing has risen 2.3-fold in three years, it said.
Domestic banks' total foreign debts reached $127.39 billion as of end-June, up
36.8 percent from a year earlier, the central bank said.
Market watchers attributed the sharp rise in banks' foreign debts to their
increased currency forward deals which stemmed from a rise in retail and
corporate demand for such transactions.
They said increased foreign debts among banks raises the possibility of global
financial turmoil spilling over into the domestic currency market.
"With a global credit crunch showing no signs of easing, there is a possibility
that domestic banks with relatively large amounts of short-term foreign debts may
face asset-liability mismatches," said Jang Jae-cheol, a senior researcher at
Samsung Economic Research Institute.
Indeed, the South Korean currency has recently plunged against the U.S. dollar
amid a dollar crunch in the local currency market.
The South Korean won has depreciated more than 35 percent against the greenback
this year, prompting foreign exchange authorities to intervene massively and
putting upward pressure on inflation.
A weaker local currency makes imports more expensive, which in turn leads to
higher prices of consumer goods. Consumer inflation remains high in South Korea,
with the consumer price index rising 5.1 percent in September from a year
earlier.