Korean banks pledge to provide relief to non-banking sector amid liquidity woes

[Photo by Han Joo-hyung]

South Korean banks will actively chip in to ease the immediate liquidity crunch in the secondary financial sector by purchasing their commercial papers and asset-back commercial papers.

Banks who have been enjoying a heyday from interest margin amid rapid rises in interest rates pledged not to issue bonds at home while the market is tight and fund non-banking sector through repurchase agreements at a meeting overseen by Kim Joo-hyun, chairman of the Financial Services Commission, earlier Wednesday.

The country’s five biggest banks had pledged to provide 95 trillion won ($70 billion) in the fund market. In October, they bought 4.3 trillion won worth of CPs, ABCPs and other short-term bonds and 6.5 trillion won from specialty banks, credit card companies and other financial institutions.

Banks also said they will make efforts to reduce the burden on the public by allowing funds to circulate in the real economy and financial markets as well as to work to support vulnerable borrowers.

FSC’s Kim urged the banks to play a role in not just the banking industry but also for the broader financial system to help stabilize the fund market.

“There is bigger concern that credit crunch risk could be heightened as sentiment weakens,’’ Kim said. The government’s measures to stabilize the market backed by banking funds will help provide some relief to companies and small businesses as well as aid the bond market, he said.

Meanwhile, the risk from the insolvency in property financing weighs over the secondary financial sector due to their ballooned investment during real estate boom.

Property financing by insurers, credit companies, and securities companies amounted to 842.,3 trillion won as of September this year, 87.3 percent higher than 449 trillion won at the end of 2018, according to the Korea Institute of Finance.

By Pulse