Fundamentals solid and banks sound, FSS Gov. Lee says

Fundamentals are sound and the banks are strong, Financial Supervisory Service (FSS) Gov. Lee Bok-hyun said on Monday.

Financial Supervisory Service chief Lee Bok-hyun speaks at the National Assembly, western Seoul, on Oct. 11. [YONHAP]

Fundamentals are sound and the banks are strong, Financial Supervisory Service (FSS) Gov. Lee Bok-hyun said on Monday.

He added that Heungkuk Life Insurance has sufficient funding.

The insurance company rattled markets, already on edge as interest rates are jacked up globally, when it announced last week that it would not exercise a call option for $500 million of perpetual notes issued in 2017.

It was the first company to push back the redemption of a perpetual note since Woori Bank in 2009. Call options can be exercised every six months. Heungkuk Life Insurance did not have to exercise the option, but the market has been sensitive to any signs of corporate funding issues.

The bond market was already shaken after Iwon Jeil Cha, a special purpose company established to fund the construction of the Legoland resort in Gangwon, was listed as bankrupt in early October. It had failed to repay 205 billion won ($146 million) in asset-backed commercial paper.

Yields on government bonds with three-year maturities jumped to as high as 4.186 percent as of Monday, compared to a 1.906 percent a year earlier.

“There have been errors in financing in the short-term funding market, but we conclude it is not a matter of liquidity of the overall financial system,” He added. “Liquidity grew abundant as in the era of low interest rate over the past 10 years. But our country’s fundamentals are comparatively still solid across industries and their competitiveness is expected to grow after going through this period.”

Lee added that the banks are sound and have a pivotal role to play in financing.

The five financial holding firms in Korea – KB, Hana, Shinhan, Woori and NH – have agreed to provide 95 trillion won in liquidity by year-end.

The ratio of bank non-performing loans was 0.41 percent as of the end of June, compared to 0.50 percent at the end of last year.

Lee said it is not the right time to discuss the full resumption of the short-selling of listed stocks.

Short-selling was temporarily prohibited in March 2020 after the local stock market collapsed following the Covid-19 outbreak. It was partially resumed last year for large and mid-cap companies in the Kospi 200 and Kosdaq 150 indexes.

BY JIN MIN-JI [jin.minji@joongang.co.kr]