Watchdog mulls lifting ban on short selling

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SEOUL, May 15 (Yonhap) -- South Korea's financial watchdog is considering
eliminating a ban on short selling of stocks as soon as possible, its chief said
Friday, amid signs that global financial instability is easing.
The Financial Services Commission (FSC) imposed the ban on short selling, or sale
of shares by borrowing them in anticipation of price falls, in October to keep
the trading practice from battering the local bourse amid global financial
turmoil.
"We are monitoring the situation and looking into the impact of easing the ban,"
FSC Chairman Chin Dong-soo, told a press conference with foreign correspondents.
"We plan to decide on how to deal with that issue as soon as possible after
reviewing what would be better options."
Meanwhile, Chin said it is premature for the state-run Korea Development Bank
(KDB) to seek to buy a lender. KDB has been considering buying a domestic bank or
a lender in the Asian market expand its deposit base prior to a planned
privatization.
"As the global financial turmoil has not yet to come to an end and KDB is playing
a role as a policy lender, at least this year, it would be better for the bank to
focus on tasks given to it," Chin said.
Shares of Korea Exchange Bank, controlled by U.S. buyout funds Lone Star Funds,
had earlier jumped on prospects that it would be the target of a KDB takeover.
KDB is currently in talks with troubled U.S. carmaker General Motors Corp. over
easing liquidity squeeze facing GM Daewoo Auto & Technology Co. KDB says the
lender could consider increasing its stake in GM Daewoo if its U.S. parent
promises to provide financial aid.
"For KDB, increasing a stake in GM Daewoo could be one of options," Chin said.
KDB has a 28-percent stake in the carmaker, with the remainder held by General
Motors and others. Cash-strapped GM Daewoo has called since February on its main
creditor KDB to provide one trillion won (US$795.5 million) in financial
assistance, but the lender has been reluctant to give aid, citing the uncertainty
surrounding the U.S. automaker.
The chairman also said that local banks are excessively dependent on short-term
overseas funding, and that the watchdog plans to take steps to enhance the
foreign currency funding structure.
As part of such efforts, Chin said the ratio of mid- and long-term overseas
borrowing to lending will be upgraded to 110 percent from the current 80 percent.
South Korean banks, saddled with high overseas short-term borrowing, had been
suffering from dollar shortages sparked by the failure of Lehman Brothers last
year.
sooyeon@yna.co.kr
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