ID :
183187
Thu, 05/19/2011 - 15:41
Auther :
Shortlink :
https://oananews.org//node/183187
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S. Korea to further tighten banks' handling of currency derivatives
(ATTN: REWRITES lead; UPDATES with more info in paras 8-9,14)
SEOUL (Yonhap) - South Korea said Thursday that it will lower the ceiling of foreign exchange derivatives positions held by local and foreign banks by 20 percent in a bid to curb the country's growing short-term debt.
The finance ministry said the government plans to restrict the amount of currency forwards held by local branches of foreign banks to 200 percent of their equity capital from the current 250 percent. The ceiling for Korean banks will be lowered to 40 percent from 50 percent.
The move came after the central bank and the financial watchdog inspected the practice of banks' currency forward trading and their handling of "kimchi bonds," foreign-currency debt issued within South Korea, amid a surge in short-term overseas debt.
"The move is expected to curb excessive growth of banks' short-term debt and improve lenders' foreign exchange soundness," the government said in a statement. The move will go into effect starting on July 1.
The government said it will also draw up measures to curb banks' handling of kimchi bonds "as soon as possible" after conducting a second round of a joint inspection into the practice of banks' handling of such debt this month.
Kimchi bonds refer to foreign-currency debt issued by local and foreign companies in South Korea.
Excessive sales of kimchi bonds have been blamed as the main culprit for rising short-term foreign debt, putting upward pressure on the local currency. The Korean won has risen more than 4.5 percent to the U.S. dollar since January.
The proceeds of the kimchi bonds sales were originally restricted to foreign-currency transactions. But some local firms sold kimchi bonds to swap the dollar into the won through local branches of foreign banks, given that the sale of foreign-currency bonds is cheaper than that of won-denominated ones.
The sale of kimchi bonds reached US$3.7 billion in the first quarter, more than half of the $6.1 billion sold throughout last year.
The new measures come as the country's short-term debt has sharply risen since the start of this year, which is feared to hurt market stability.
According to the Bank of Korea, short-term borrowing came in at a net $6.72 billion in March, the highest mark since $6.81 billion in August 2008.
A rise in short-term borrowing can become a source of concerns as a surge in foreign debt left local banks vulnerable to external shocks at the height of the global financial crisis.
"South Korea plans to closely monitor the growth of short-term debt and capital flows and to preemptively respond to potential worsening of the situation," the finance ministry said in a statement.
"The government plans to check whether banks abide by the regulation and aggressively review whether to adjust the ceiling of FX forward positions every quarter."
In a related move, South Korea plans to impose a levy on banks' non-deposit foreign currency borrowings starting in August in a bid to curb excessive capital flows.
SEOUL (Yonhap) - South Korea said Thursday that it will lower the ceiling of foreign exchange derivatives positions held by local and foreign banks by 20 percent in a bid to curb the country's growing short-term debt.
The finance ministry said the government plans to restrict the amount of currency forwards held by local branches of foreign banks to 200 percent of their equity capital from the current 250 percent. The ceiling for Korean banks will be lowered to 40 percent from 50 percent.
The move came after the central bank and the financial watchdog inspected the practice of banks' currency forward trading and their handling of "kimchi bonds," foreign-currency debt issued within South Korea, amid a surge in short-term overseas debt.
"The move is expected to curb excessive growth of banks' short-term debt and improve lenders' foreign exchange soundness," the government said in a statement. The move will go into effect starting on July 1.
The government said it will also draw up measures to curb banks' handling of kimchi bonds "as soon as possible" after conducting a second round of a joint inspection into the practice of banks' handling of such debt this month.
Kimchi bonds refer to foreign-currency debt issued by local and foreign companies in South Korea.
Excessive sales of kimchi bonds have been blamed as the main culprit for rising short-term foreign debt, putting upward pressure on the local currency. The Korean won has risen more than 4.5 percent to the U.S. dollar since January.
The proceeds of the kimchi bonds sales were originally restricted to foreign-currency transactions. But some local firms sold kimchi bonds to swap the dollar into the won through local branches of foreign banks, given that the sale of foreign-currency bonds is cheaper than that of won-denominated ones.
The sale of kimchi bonds reached US$3.7 billion in the first quarter, more than half of the $6.1 billion sold throughout last year.
The new measures come as the country's short-term debt has sharply risen since the start of this year, which is feared to hurt market stability.
According to the Bank of Korea, short-term borrowing came in at a net $6.72 billion in March, the highest mark since $6.81 billion in August 2008.
A rise in short-term borrowing can become a source of concerns as a surge in foreign debt left local banks vulnerable to external shocks at the height of the global financial crisis.
"South Korea plans to closely monitor the growth of short-term debt and capital flows and to preemptively respond to potential worsening of the situation," the finance ministry said in a statement.
"The government plans to check whether banks abide by the regulation and aggressively review whether to adjust the ceiling of FX forward positions every quarter."
In a related move, South Korea plans to impose a levy on banks' non-deposit foreign currency borrowings starting in August in a bid to curb excessive capital flows.
