S. Korea Will Maintain Liquidity Support for Markets

By Seyoon Kim

Oct. 6 (Bloomberg) -- South Korea's Finance Minister Kang Man Soo said the government will continue to provide liquidity to the market through won-dollar swaps.

Banks should limit their foreign-currency holdings as it can stem cashflow to exporters, Kang said, according to speech notes distributed before his meeting with heads of local banks in Seoul today.

``It's likely to take quite a while until the credit crunch eases in the emerging markets,'' Kang said. ``We urge bank presidents to monitor the banks' liquidity status every day and try to acquire foreign-currency liquidity by selling overseas assets.''

The government said last week it will supply $5 billion to the Export-Import Bank of Korea to provide assistance to small businesses. The bank will set up a program that provides discounted promissory notes that allow exporters to receive funds from their overseas-trade proceeds more quickly.

South Korea also has said it will make available at least 4.3 trillion won ($3.6 billion) in extra loans to small and medium-sized companies struggling with rising costs and losses related to currency movements.

Kang urged banks ``not to hold onto too much foreign currency reserves'' saying the moves can reduce trade financing and can add difficulties to smaller exporting firms.

The won fell on Oct. 2, approaching a five-year low, as a seizure of global credit markets forced banks to turn to currency exchanges to meet their dollar-financing needs. The local currency fell 2.9 percent to 1,223.55 per dollar on Oct. 2 and has slumped 24 percent this year. The market was closed for public holiday on Oct. 3.

The nation's foreign reserves fell for a sixth month in September to $239.7 billion, from $243.2 billion in August, after authorities provided dollars in the swap market to boost liquidity and help stem the won's drop, according to data by the central bank.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net