South Korea to guarantee domestic banks' foreign currency debt

Source: Agencies  |   2008-10-19  |     ONLINE EDITION

SOUTH Korea announced measures today to shore up its banks by guaranteeing their external debt and pumping more money into the banking sector amid the global financial crisis.

The government said it will provide up to US$100 billion to secure banks' maturing foreign currency debt for three years on loans taken out from Oct. 20 this year until June 30, 2009.

Minister of Strategy and Finance Kang Man-soo, Chairman of the Financial Services Commission Jun Kwang-woo, and Bank of Korea Gov. Lee Seong-tae made the announcement in a joint statement.

The government and Bank of Korea will also provide additional liquidity equivalent to US$30 billion to the banking sector by utilizing foreign exchange reserves, the statement said.

The announcement came as analysts have questioned South Korean banks' ability to raise dollars to pay off maturing foreign loans amid the global credit crunch.

"Despite the recent credit crisis, (South) Korea's real economy and its financial sector are sound," the statement said, reiterating the government's position that fears about South Korea being vulnerable to the crisis were overblown.

The government has said its US$240 billion in foreign currency reserves are more than sufficient to see the country through the global liquidity crunch.