BOK vows to pump ample liquidity into financial system

SEOUL, Jan. 16 (Yonhap) -- The chief of South Korea's central bank said Friday it
will continue to provide sufficient liquidity to the financial system in a move
to ease a lingering credit crunch.

Local banks are wary of lending money to households and smaller firms as the
slowing economy and a credit squeeze are increasing the amount of bad loans.
In a meeting with heads of eight local banks, Bank of Korea (BOK) Gov. Lee
Seong-tae vowed to pump ample liquidity into the financial system and called for
South Korean banks to manage their funds aggressively.
Despite the steep rate cuts and liquidity supply by the BOK, funds are not fully
flowing into the real economy as money returns to the central bank through
repurchase agreement operations due mainly to risk aversion by banks.
Bank heads shared the view that rapid falls in lending rates are necessary to
prevent the economy from sharply faltering although they could weigh on lenders'
balance sheets in the short term.
A series of rate cuts have driven down market interest rates like returns of
certificates of deposit, easing loan repayment burdens of households. But as
local banks heavily sold products carrying higher-than-average interest rates and
bank bonds to attract deposits, their profitability is feared to worsen amid
falling lending rates.
Since October, the BOK has cut the policy rate by 2.75 percentage points to a
record low of 2.5 percent in an effort to bolster the slowing economy.
sooyeon@yna.co.kr
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