Watchdog to limit usage of state-guaranteed foreign debts

SEOUL, Oct. 24 (Yonhap) -- South Korea's financial watchdog said Friday local banks should reserve their future state-guaranteed borrowing from abroad for rolling over maturing foreign debts.

The government pledged Sunday to offer three-year guarantees of up to US$100
billion for foreign debts that local banks bring in between late October and June
of next year, and to inject $30 billion into dollar-starved lenders and
companies.
"The watchdog will reach a preliminary agreement with 18 lenders regarding the
state guarantee and their responsibility by next month," the Financial Services
Commission (FSC) told a parliamentary audit.
The move includes banks' plans for providing liquidity to smaller companies and
mid- and long-term measures to overhaul fund-raising practices, the watchdog
said.
Local bankers said on Wednesday they would make voluntary efforts to share some
of the financial "pain" by cutting executive pay in return for the country's
foreign debt guarantee.
South Korean banks are suffering from cash shortages. They have had trouble
recently in raising funds and rolling over loans amid the global financial
turmoil, which was sparked by the collapse of U.S. investment bank Lehman
Brothers Holdings Inc.
Despite a rate cut by the central bank in October, the returns on bank bonds and
91-day certificates of deposit have been on an upward trend amid lackluster
demand for such notes, pinching local lenders. The government is urging the Bank
of Korea (BOK) to buy bonds issued by commercial banks to help them to secure
Korean won liquidity.
Meanwhile, the FSC said that given the financial soundness of local banks, it is
not the time to extend guarantee for deposits or recapitalize financial firms.
However, the watchdog said it may take action to guarantee deposits at any time,
if deemed necessary.
sooyeon@yna.co.kr
(END)