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

(ATTN: UPDATES with more details in paras 3, 6, 9-10)
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 typei of bonds that can be bought through
open market operations, the Bank of Korea's (BOK) Monetary Policy Committee said.
It said that purchasing bonds issued by the Korea Housing Finance Corp. (KHFC)
through a repurchase agreement 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 measures follows a similar move taken on Oct. 27 to buy bank-issued bonds.
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. It said that 500 billion won will go to banks as
interest payments.
Interest payments can translate into immediate profits for banks, enabling these
institutions to extend new loans.
The decision to pay interest on reserve deposits is the first since late 1986.
BOK insiders said that expanding open market operations and interest payments
should allow a total of 6.3 trillion won worth of fresh funds to reach banks.
They added that depending on market conditions, other market stabilization
measures may be taken.
The measures comes as companies have complained that banks are not extending
loans, which could lead to the bankruptcies of healthy companies.
yonngong@yna.co.kr
(END)