S. Korean banks likely to put 8 tln won into bond fund

SEOUL, Nov. 26 (Yonhap) -- South Korean banks including state-run Korea Development Bank (KDB) are likely to inject about 8 trillion won (US$5.36 billion) into a proposed bond fund aimed at stabilizing the local debt market, industry sources said Wednesday.

The Financial Services Commission (FSC), the country's financial watchdog, plans
to create a 10 trillion won fund into which banks and other institutional
investors would pool money to buy financial and corporate debts. KDB plans to
invest 2 trillion won in the fund.
"Contribution by local commercial banks may be allocated in accordance with their
assets," an official at the FSC said.
On Monday, the Bank of Korea (BOK) said it will provide up to 5 trillion won into
the fund or match up to 50 percent of contributions by financial firms in a bid
to help thaw the frozen debt market.
The BOK plans to purchase treasury bonds held by banks, insurers and securities
firms or buy back currency stabilization bonds before maturity. In turn, those
firms will spend the proceeds in investing in the bond fund.
Total assets held by banks reached 1,737 trillion won, followed by 377 trillion
won of insurers and 152 trillion won by brokerage houses as of the end of June,
sources said.
Market watchers expect that local lenders will likely put 8.1 trillion won to the
fund. Insurance companies are expected to contribute 1.3 trillion won with
securities firms injecting the remainder, they said.
The establishment of the bond fund came as the local bond market had been rattled
amid a lack of buyers. Despite steep rate cuts by the BOK, the yields of the
corporate bonds or certificates of deposit have not fallen as much as expected,
deepening a credit squeeze in the debt market.
Since October, the BOK has slashed its key interest rate by a combined 1.25
percentage point to 4 percent.