S. Korea's central bank to buy housing bonds to help fuel loans

SEOUL, Dec. 3 (Yonhap) -- South Korea's central bank said Wednesday that it will
buy housing bonds to allow domestic lenders to increase loans to companies
suffering from the current liquidity crunch.
The decision calls for expanding the type of bonds that can be bought through
open market operations, the Bank of Korea's Monetary Policy Committee said.
It said that purchasing bonds issued by the Korea Housing Finance Corp. (KHFC)
will allow the state-run firm to take over mortgages on homes that have become a
serious liability to the health of domestic lenders.
Many mortgages were extended during the real estate market boom, but the
percentage of arrears has risen sharply with the fall of housing prices and the
onset of the economic slump.
The committee also said that it will start paying annual interest rates of 2.3
percent on 23 trillion won (US$15.65 billion) in repayment reserves deposited by
lenders at the central bank.
Interest payments can translate into immediate profits for banks, enabling these
institutions to extend new loans.
The measures comes as companies have complained that banks are not extending
loans, which could lead to the bankruptcies of healthy companies.
The decision to pay interest on reserve deposits is the first since late 1986.
yonngong@yna.co.kr
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