Bank of Korea to skip dollar auction this week

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SEOUL, March 10 (Yonhap) -- South Korea's central bank said Tuesday it will not
provide dollar liquidity to local banks this week because they are making their
own efforts to borrow from overseas and the nation's trade balance is improving.

Since October, the Bank of Korea (BOK) has provided foreign currency liquidity to
cash-strapped banks by tapping foreign exchange reserves or a US$30 billion
currency swap line with the U.S. Federal Reserve.
"The central bank decided not to hold an auction to provide dollars to banks this
week as overseas borrowing by lenders has improved and their efforts to get
overseas funding are expected to continue," the BOK said in a statement. "The
trade balance also swung to a surplus in February and in March, and the country
is likely to see a considerable surplus."
It was the first time that the BOK has missed an auction for dollar supply since
it introduced an open bidding system for won-dollar swaps in October last year.
"The BOK will continue to evaluate global financial markets and the country's
current account balance, and will remain flexible in deciding whether to provide
dollar liquidity," it added.
Hit by the collapse of Lehman Brothers Holdings Inc., local banks have been
suffering from dollar shortages, sparking concerns they may have difficulty in
meeting financing needs and servicing their debt.
According to the BOK, it supplied $10.27 billion to local banks through swap
transactions last year, out of which the BOK has retrieved $4.92 billion so far
this year. It has also tapped $16.35 billion out of the currency swap facility
with the Fed.
Some have raised questions that the country's foreign reserves may not be
sufficient to cover the foreign debt burdens of local banks. South Korea's
foreign reserves totaled US$201.54 billion at the end of February, the
sixth-largest in the world.
But the BOK said in earlier day that South Korea's entire foreign exchange
reserves are usable at any time because they are invested in highly liquid assets
and can thus be easily converted into cash.
According to the government, foreign debt held by local banks and foreign
branches reached $92.6 billion as of the end of January, and $38.3 billion in
overseas debt will mature this year. The government and the BOK have said the
amount is manageable given the country's foreign reserves.
South Korea posted its first trade deficit in more than a decade in 2008 due to a
surge in oil prices. In January, the country saw a deficit of $3.36 billion, but
the trade balance swung to a surplus of $3.3 billion last month.
The BOK said in December that the country is forecast to log a current account
surplus of around $22 billion this year, which will help increase the dollar
inflow to the export-driven country.
sooyeon@yna.co.kr
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