Korea mulling tighter rules on foreign bank branches

SEOUL, Oct. 22 (Yonhap) -- South Korea is considering imposing tougher
regulations on overseas borrowing by local branches of foreign banks in a bid to
stem the local currency's steep climb against the U.S. dollar, government sources
said Thursday.
"A task force is considering stiffening regulations governing foreign bank
branches and setting a cap on foreign currency denominated debts. It is also
reviewing all current rules about foreign currency from scratch," a government
source said, asking not to be named. "But a final decision on whether to impose
tougher rules has not been made."
The Korean won has gained about 33 percent versus the dollar since March as
foreign investors snapped up local stocks and local banks and companies have made
efforts to borrow from overseas. The local currency tumbled 25.7 percent to the
greenback last year alone, hit by the global financial meltdown.
The won's sharp gain is feared to hurt exports, the backbone of the local
economy, as prices of Korean goods become expensive at overseas markets.
Local branches of foreign banks finance the dollar from their headquarters at a
low cost and invest in government bonds after tapping the won-dollar swap market,
providing dollar liquidity to the financial system and putting upward pressure on
the won.
To curb the won's surge, the government plans to restrict state-run firms from
selling debts or borrowing overseas and to suspend the issuance of
dollar-denominated sovereign bonds.
sooyeon@yna.co.kr
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