ID :
90568
Thu, 11/19/2009 - 16:27
Auther :
Shortlink :
https://www.oananews.org//node/90568
The shortlink copeid
(LEAD) Banks to face tougher foreign currency liquidity rules
(ATTN: ADDS more details from para 6)
SEOUL, Nov. 19 (Yonhap) -- South Korea's financial watchdog said Thursday it will
require local banks to hold safer foreign assets from next year in an effort to
prevent a possible liquidity crunch.
Korean banks, saddled with high short-term borrowing, suffered from a severe
liquidity squeeze last year as they were hit by the U.S.-sparked global financial
crisis, fueling concerns they may face difficulty in servicing their debt.
Starting July 2010, investment vehicles with credit ratings of "A" and above,
such as U.S. Treasuries, will be required to account for more than 2 percent of
banks' foreign currency assets, the Financial Services Commission (FSC) said.
The watchdog said it could raise the ratio down the road, depending on banks'
foreign currency liquidity conditions.
"The move aims at boosting local banks' foreign currency liquidity and beefing up
their risk management," Choo Kyung-ho, director-general of the financial policy
bureau of the FSC, said in a press briefing.
The FSC also announced measures to stem excessive currency hedging as part of
efforts to encourage local banks to beef up their risk management for foreign
currency derivatives.
It will bar local exporters from selling foreign exchange forwards more than 125
percent of their exports, the watchdog said. The move will take effect in
January.
Local shipbuilders and exporters usually unload dollar forwards to hedge currency
risks after winning contracts when the won is widely expected to gain against the
dollar. Continued sales of dollar forwards pushes up the Korean currency against
the greenback.
Excessive currency hedging could incur heavy losses for companies and local banks
and increase short-term foreign debt if the Korean won sharply weakens to the
greenback. The Korean unit has gained about 36 percent to the dollar since March
when it hit an 11-year low.
Choo reiterated that the government is not considering imposing direct foreign
currency controls on local branches of foreign banks.
"There should be a cautious approach to possible liquidity controls on foreign
bank branches," Choo said.
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.
Talks about a possible move to restrict their overseas borrowing had sparked some
jitters among foreign investors, prompting the yields of government debts to rise
sharply in mid-October.
sooyeon@yna.co.kr
(END)
SEOUL, Nov. 19 (Yonhap) -- South Korea's financial watchdog said Thursday it will
require local banks to hold safer foreign assets from next year in an effort to
prevent a possible liquidity crunch.
Korean banks, saddled with high short-term borrowing, suffered from a severe
liquidity squeeze last year as they were hit by the U.S.-sparked global financial
crisis, fueling concerns they may face difficulty in servicing their debt.
Starting July 2010, investment vehicles with credit ratings of "A" and above,
such as U.S. Treasuries, will be required to account for more than 2 percent of
banks' foreign currency assets, the Financial Services Commission (FSC) said.
The watchdog said it could raise the ratio down the road, depending on banks'
foreign currency liquidity conditions.
"The move aims at boosting local banks' foreign currency liquidity and beefing up
their risk management," Choo Kyung-ho, director-general of the financial policy
bureau of the FSC, said in a press briefing.
The FSC also announced measures to stem excessive currency hedging as part of
efforts to encourage local banks to beef up their risk management for foreign
currency derivatives.
It will bar local exporters from selling foreign exchange forwards more than 125
percent of their exports, the watchdog said. The move will take effect in
January.
Local shipbuilders and exporters usually unload dollar forwards to hedge currency
risks after winning contracts when the won is widely expected to gain against the
dollar. Continued sales of dollar forwards pushes up the Korean currency against
the greenback.
Excessive currency hedging could incur heavy losses for companies and local banks
and increase short-term foreign debt if the Korean won sharply weakens to the
greenback. The Korean unit has gained about 36 percent to the dollar since March
when it hit an 11-year low.
Choo reiterated that the government is not considering imposing direct foreign
currency controls on local branches of foreign banks.
"There should be a cautious approach to possible liquidity controls on foreign
bank branches," Choo said.
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.
Talks about a possible move to restrict their overseas borrowing had sparked some
jitters among foreign investors, prompting the yields of government debts to rise
sharply in mid-October.
sooyeon@yna.co.kr
(END)
