BOK to lend 3.3 tln won to bank recapitalization fund

SEOUL, March 26 (Yonhap) -- South Korea's central bank said Thursday it will
extend 3.3 trillion won (US$2.46 billion) in loans to state-run Korea Development
Bank (KDB) as part of its contribution to a bank recapitalization fund.
South Korea is set to launch a 20 trillion won fund that will be used to buy
subordinated bonds and hybrid debt from lenders in an effort to help raise their
capital bases.
On Feb. 25, the Bank of Korea (BOK) decided to provide up to 10 trillion won to
the fund by extending loans to KDB, which in turn will re-lend the money to the
fund.
"The central bank will first lend 3.3 trillion won, about 80 percent of a
combined 3.96 trillion won worth of such bonds that the fund will purchase," the
BOK said in a statement after its monetary policy committee meeting. The loan
will mature in one year, it added.
The launch of the fund comes as local banks remain wary of extending loans,
especially to smaller, cash-strapped firms, due to fears that the deepening
economic slump and a corporate overhaul drive will result in more bad loans,
compromising their financial soundness.
The fund will begin injecting a total of 4.3 trillion won into five local banks
including top lender Kookmin Bank on Tuesday in a bid to encourage them to expand
their lending.
The BOK also added it has decided to extend as much as 430 billion won in capital
to state-run Korea Credit Guarantee Fund (KODIT) in a bid to increase the
agency's credit guarantee capacity.
The BOK's loan to KDB will result in a decline in the policy lender's capital
adequacy ratio, a key barometer of financial health needed to secure credit
guarantees from KODIT, it added.
In a separate statement, the BOK said it decided to keep unchanged the cap on its
low-rate loans to commercial lenders to 10 trillion won for the second quarter.
On March 12, the central bank raised the upper ceiling by 1 trillion won. The
loans, which commercial banks then re-lend solely to small and medium
enterprises, carry an annual interest of 1.25 percent.
sooyeon@yna.co.kr
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