By Sangim Han
Feb. 26 (Bloomberg) -- South Korea expects continued volatility in the won, the world’s worst-performing major currency in the past year, further delaying bank sales of bonds to global investors, the Financial Services Commission said.
“We’re going to have a lumpy road on the FX side,” FSC Vice Chairman Rhee Chang Yong said in an interview in Seoul yesterday. “Because of the eastern European market situation, I can see that March won’t be an easy month” for commercial banks to raise funds in the international market, he said.
Korea’s $202 billion of foreign reserves will allow the central bank to “smooth” trading in the won, which dropped 37 percent in the past 12 months, Rhee said. The currency this month approached an 11-year low reached in November as the economy headed for a recession and investors fled Eastern Europe, where the International Monetary Fund has bailed out five countries.
“Korea’s foreign liquidity isn’t good and the first quarter also witnessed the unexpected eastern Europe factor,” said Kwon Goohoon, an economist at Goldman Sachs Group Inc. in Seoul. “Still, the won will stabilize in the latter half of this year as Korea may turn to a surplus in current accounts.”
European banks hold 47 percent of the $168.4 billion in Korean banks’ foreign liabilities, according to FSC data. The Seoul Economic Daily yesterday said the continent’s lenders may be reluctant to extend more credit as they deal with losses closer to home.
South Korea’s direct exposure to eastern Europe is negligible, Rhee said, with less than $2 billion of assets in the region.
‘March Crisis’
The risk of a “March crisis” for banks, in which foreign lenders refuse to roll over maturing debt, is also overblown, Rhee said.
About 90 percent of Korean bank debt is being renewed by foreign creditors this year, Rhee said, up from only 40 percent in October and November, after the collapse of Lehman Brothers Holdings Inc. froze global credit markets.
“I can’t say Korea is now in a safe zone, but definitely Korea is not in a red zone, as in October or November,” said Rhee, whose agency supervises banks in Asia’s fourth-largest economy. “Now, our banks are easily extended by three or four months.”
The won fell 0.2 percent to 1,519.20 per dollar as of 1:58 p.m. in Seoul, near the 11-year low of 1,525 reached in November. One-month implied volatility on dollar-won options, a measure of price swings expected by traders, dropped to 30 percent yesterday from as high as 80 percent on Oct. 28. A year ago, it was as low as 5 percent.
Pooling Funds
South Korea has widened its own access to foreign currency, joining Japan, China and 10 Southeast Asian nations this week in setting up a $120 billion pool of foreign exchange reserves. In October, the Federal Reserve agreed to provide a $30 billion swap line to South Korea as part of a broader effort to help emerging markets maintain access to U.S. dollars.
Korean banks have $24.5 billion of foreign-currency debt maturing in 2009, including $10.4 billion due in February and March, the Bank of Korea said on Feb. 19.
Rhee said the country’s export-oriented economy leaves it “intrinsically exposed” to slowing growth and volatile markets in the rest of the world. Foreign creditors granting new loans are offering shorter maturities, he said.
Missed Opportunity
Many South Korean banks missed a window of opportunity to tap global markets in January, before renewed concerns about sovereign defaults and the health of global banks raised the cost of foreign funding.
State-run lenders Korea Development Bank and Export-Import Bank of Korea sold $4 billion of global bonds in January to provide a benchmark, only for other banks to hold back, hoping to pay less as the year progressed.
“Private banks had many reasons not to go in January as they expected international markets will improve in the first quarter,” Rhee said. “For now, we will see if they will go ahead with their plans or delay to April.”
South Korea has offered a three-year guarantee on as much as $100 billion of global bonds sold by banks before the end of June. Rhee said he expects the guarantee would be extended beyond June if markets don’t improve.
‘Shocked’
For now, banks don’t have an urgent need to raise funds after increasing capital by more than 16 trillion won ($10.5 billion) last year, bringing capital adequacy ratios to 12.19 percent as of December, Rhee said.
The government has also set up a 20 trillion won fund which banks can tap to boost capital, and the FSC said yesterday it will start disbursing such funds next month. Korea Asset Management Corp., which bought 111 trillion won of bad loans after the 1997-1998 Asian crisis forced South Korea to seek an IMF bailout, will resume buying bad loans from banks later this year.
“We learned a lot of lessons in 1997,” Rhee said. “Because of those bad memories, many Koreans know what has to be done.”
To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net
Posts
No comments:
Post a Comment