Korea not mulling tighter rules on foreign bank branches: watchdog

SEOUL, Nov. 6 (Yonhap) -- South Korea's financial watchdog said Friday it is not
considering imposing tougher regulations on overseas borrowing by local branches
of foreign banks, dismissing concerns that stiffer rules may come out to stem the
local currency's sharp gain.
Talk of possible restrictions over foreign currency liquidity came as the Korean
currency's steep ascent against the U.S. dollar is feared to hurt the country's
exports, the backbone of the local economy. The won has risen about 34 percent
against the U.S. dollar since March.
"Currently, the watchdog is not considering putting controls over liquidity held
by foreign bank branches," Choo Kyung-ho, director-general at the financial
policy bureau of the Financial Services Commission (FSC), said in a press
briefing.
Choo added that a cautious approach is necessary as foreign bank branches are
playing the role of providing foreign currency liquidity to the financial system.
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.
A possible move to restrict their overseas borrowing has sparked some jitters
from foreign investors, prompting the yields of government debts to rise sharply
in mid-October.
Meanwhile, the FSC said it is considering phasing out emergency steps to support
smaller local firms, which were put in place in a bid to help them cope with a
severe credit crunch sparked by the global financial turmoil.
The government had urged local banks to extend maturity of loans to smaller firms
and provide state credit guarantees for such loans. The moves came as local banks
were wary of lending money to small and medium enterprises due to high credit
risks.
"The watchdog is reviewing with related agencies how to smoothly phase out such
steps next year, but specific details have not yet been decided," Choo said.
sooyeon@yna.co.kr
(END)