S. Korean bank plan to take effect over time: official

(ATTN: RECASTS lead; UPDATES figures in 5th para; ADDS more details in last five paras)
SEOUL, Oct. 21 (Yonhap) -- South Korea's proposed US$130 billion rescue package
for local banks will need time to take effect, but will help shield the economy
from a sharp financial downturn, a high-ranking official said Tuesday.
The South Korean government pledged Sunday to guarantee $100 billion worth of
foreign currency debts owed by local lenders and offer $30 billion to the cash
strapped institutes as part of efforts to help ease a liquidity shortage.
The government will also provide tax benefits for long-term equity and bond
investors, and the central bank will buy repurchase agreements and government
bonds from banks to boost won liquidity.
"We expect the measures will help ease liquidity difficulties confronting
financial institutions. The measures will take effect over time... Local
financial markets are already showing signs of stability," Vice Finance Minister
Kim Dong-soo said on a local radio program.
"The financial aid package is also expected to prevent financial instability from
spilling over into the real economy," he said.
The local currency was trading at 1,305.20 won to the U.S. dollar as of 2:00
p.m., down 32 won from the previous day, and the country's key Korea Composite
Stock Price Index (KOSPI) slipped 1.85 percent to 1,185.24.
Kim said the government will closely monitor potential moral hazards stemming
from banks seeking to take advantage of the government debt guarantee.
Earlier in the day, President Lee Myung-bak urged local lenders to share some of
the financial "pain" in return for the state's foreign debt guarantee.
Kookmin Bank, the country's leading lender, said its executives would return 5
percent of their salaries to the company next year.
Despite foreign reserves of almost $240 billion, South Korea was seen as
vulnerable to the world financial turmoil because of increased short-term foreign
borrowing by its banks.
Global rating agency firm Fitch Ratings affirmed South Korea's credit rating at
A+, saying the financial-rescue package was "sufficiently focused and affordable
to be consistent with Korea's current sovereign ratings."