Korean banks selling bonds again as debt markets stabilize

Banks are starting to sell bonds again as the financial markets have recovered enough to handle the flood of paper.

An employee at the Hana Bank Counterfeit Notes Response Center in central Seoul organizes notes on Nov. 1. [YONHAP]

Banks are starting to sell bonds again as the financial markets have recovered enough to handle the flood of paper.

For the past two months, these financial institutions have been discouraged by regulators from issuing new bonds as companies with the highest credit ratings have been crowding out smaller companies and pushing up yields in an already tight market.

The five largest banks in the country — KB, Shinhan, Hana, Woori and NongHyup — have not sold any debt since Oct. 21.

“Banks will gradually resume bond issuance at a level that does not pressure the market,” said the Financial Services Commission (FSC) in a statement on Monday.

The FSC credited stabilizing yields, a stronger and more stable won and an expectations for slower rate rises for the return of the banks to the credit markets.

Yields on AA- corporate bonds with three-year maturities was 5.23 percent Monday morning compared to an annual high of 5.73 percent hit on Oct. 21. Yields for commercial paper with 91-day maturities was 5.46 percent Monday morning compared to the annual high of 5.54 percent on Dec. 9.

The won has stabilized around 1,300 to the dollar, though it is still off the 1,190 level in the year-earlier period.

The FSC noted the need for banks to start selling debt again to roll over existing obligations. The five banks have to pay off 2.3 trillion won ($1.8 trillion) of debt through the end of December.

KB Kookmin Bank has 240 billion won in debt maturing on Dec. 30, and another 1.42 trillion won maturing in January. Shinhan Bank has 500 billion won of bonds maturing by the end of the month, and around 900 billion won in January. Shinhan Bank started offering 250 billion won in bonds Monday.

Hana Bank has 1.4 trillion won in debt that matures through the end of January, while Woori Bank has to pay off 280 billion won in debt by Tuesday. Woori offered 280 billion won in bonds on Monday.

The FSC stressed that banks will gradually resume issuing bonds at a level that does not pressure the market.

The bond market faced a liquidity crunch as rates rose and after a developer of the Legoland theme park missed a payment in September. The announcement by Heungkuk Life Insurance in November that it would not exercise a call option on perpetual notes aggravated the investment sentiment.

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