S. Korea to tighten rules on banks' foreign currency liquidity

SEOUL, Sept. 23 (Yonhap) -- South Korea will reform regulations governing foreign
currency borrowing by banks and their foreign exchange liquidity to prevent the
repeat of a foreign exchange crisis, the top financial regulator said Wednesday.
The remark comes amid worries that local banks may suffer a liquidity crunch as
they have been accruing short-term overseas debt to extend mid-to-long-term
loans, or a so-called maturity mismatch.
"In order to fix banks' foreign-exchange related weakness, rules regulating their
foreign currency debt structure and soundness of foreign exchange positions will
be improved," Chin Dong-soo, chairman of the Financial Services Commission, said
in a speech to a forum in Seoul.
Global focus has been shifting away from crisis resolution efforts to post-crisis
financial system reformation, Chin said, adding lenders will be required to raise
their capital base to beef up their ability to absorb potential losses.
The envisioned rule tightening comes as concerns that local banks may become
unable to refinance their maturing short-term debts sent the local currency to an
11-year low in early March, limiting their access to the global credit market.
Domestic lenders have been advised to raise medium-to-long-term debts with
maturity of more than one year and reduce short-term borrowing to rev up their
foreign currency liquidity.
The ratio of lenders' foreign debts with maturity of less than one year stood at
38.7 percent as of the end of June, down 0.9 percentage point from three months
earlier.
pbr@yna.co.kr
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