ID :
207239
Thu, 09/15/2011 - 06:35
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https://oananews.org//node/207239
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Several local banks fail to pass stricter stress test: sources
SEOUL (Yonhap) - South Korea's financial watchdog plans to make local banks beef up their foreign currency liquidity by the end of the year as several lenders failed to pass a rigorous stress test, sources said Thursday.
In late August, the Financial Supervisory Service (FSS) completed conducting stricter stress tests on 12 local banks' foreign currency liquidity conditions in a bid to shield the country from a potential financial crisis.
"A recent stress test on banks was rigorous enough to take into account a potential credit crunch seen as in the 2008 global financial turmoil. The watchdog is calling for them to strengthen FX liquidity conditions to meet the guideline by the end of this year," sources said.
The FSS has made stress tests based on the second-quarter FX liquidity by taking into account various severe situations, including the potential spread of the eurozone debt crisis. It has requested that they unveil their contingency plans on how to fund foreign currency liquidity to brace for possible financial turmoil.
Stress tests are usually conducted to measure how well lenders could withstand the worst-case market scenario. The FSS has been conducting such tests on a quarterly basis since the second half of last year.
An FSS spokeswoman declined to comment on how many banks fell short of meeting the standard of the stress test.
South Korea learned a painful lesson about the importance of strengthening banks' foreign currency liquidity after experiencing the 1997-98 Asia-wide financial crisis and the global financial turmoil.
In the height of the global financial storm, Korean banks, saddled with high short-term external debt, had difficulties in refinancing foreign currency loans or securing FX liquidity, as foreign capital fled the country en masse.
The financial watchdog said that although the global financial markets showed signs of tightening, Korean banks' overall FX liquidity conditions largely remained firm.
Local banks are making efforts to secure FX liquidity as unexpected external shocks could result in a foreign currency liquidity squeeze. Top lender Kookmin Bank recently inked a US$100 million foreign currency committed line with an overseas financial firm.
In late August, the Financial Supervisory Service (FSS) completed conducting stricter stress tests on 12 local banks' foreign currency liquidity conditions in a bid to shield the country from a potential financial crisis.
"A recent stress test on banks was rigorous enough to take into account a potential credit crunch seen as in the 2008 global financial turmoil. The watchdog is calling for them to strengthen FX liquidity conditions to meet the guideline by the end of this year," sources said.
The FSS has made stress tests based on the second-quarter FX liquidity by taking into account various severe situations, including the potential spread of the eurozone debt crisis. It has requested that they unveil their contingency plans on how to fund foreign currency liquidity to brace for possible financial turmoil.
Stress tests are usually conducted to measure how well lenders could withstand the worst-case market scenario. The FSS has been conducting such tests on a quarterly basis since the second half of last year.
An FSS spokeswoman declined to comment on how many banks fell short of meeting the standard of the stress test.
South Korea learned a painful lesson about the importance of strengthening banks' foreign currency liquidity after experiencing the 1997-98 Asia-wide financial crisis and the global financial turmoil.
In the height of the global financial storm, Korean banks, saddled with high short-term external debt, had difficulties in refinancing foreign currency loans or securing FX liquidity, as foreign capital fled the country en masse.
The financial watchdog said that although the global financial markets showed signs of tightening, Korean banks' overall FX liquidity conditions largely remained firm.
Local banks are making efforts to secure FX liquidity as unexpected external shocks could result in a foreign currency liquidity squeeze. Top lender Kookmin Bank recently inked a US$100 million foreign currency committed line with an overseas financial firm.
