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| Financial Services Commission (FSC) Chairman Kim Joo-hyun, far left, speaks during a meeting with 20 local bank CEOs at the Korea Federation of Banks (KFB) in central Seoul, Wednesday. Yonhap |
By Anna J. Park
In a move to provide necessary liquidity to local credit markets, the CEOs of 20 Korean banks pledged Wednesday to minimize the issuance of bank notes, while continuing to purchase various commercial papers (CP), asset-backed commercial papers (ABCP) and repurchase agreements (RP or repos), a short-term agreement to sell securities in order to buy them back at a higher price.
During a meeting with Financial Services Commission (FSC) Chairman Kim Joo-hyun in Seoul on Wednesday morning, the bank chiefs as well as Kim Gwang-soo, the chairman of the Korea Federation of Banks (KFB), said the banking sector will assume a key role in stabilizing the local credit markets.
The country's short-term funding markets, in particular, have recently been jolted, following the default crisis of a Legoland theme park developer's ABCP last month and Heungkuk Life's decision to delay the redemption of its call option last week. The life insurer reversed its position earlier this week to carry out the call option as originally scheduled, hoping to win back market trust in Korean commercial bonds.
Specifically, five major banks ― Shinhan, KB Kookmin, Woori, Hana and NH NongHyup ―have stopped issuing bank notes since late October, seeking to avoid crowding out other corporate bonds from the short-term funding markets. The banks plan to reduce their bank note issuance volumes by the end of the year. Aiming to provide necessary liquidity to local bonds markets, the five major banks have been purchasing RPs totaling 250 trillion won ($183 billion) since October.
In addition, pledges made by the chairmen of five major financial groups earlier this month to provide 95 trillion won in liquidity, either to one of their cash-strapped affiliates or to the markets, will mostly be conducted through the banks. As a result, 72.8 trillion won worth of liquidity will be injected to the market, while another 11 trillion won will be put into a pool for bond stabilization funds and stock market stabilization funds, while six trillion won will be spent on financially supporting their affiliates.
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| Financial Services Commission (FSC) Chairman Kim Joo-hyun, fourth from left, speaks during a meeting with 20 local bank CEOs at the Korea Federation of Banks (KFB) in central Seoul, Wednesday. Yonhap |
The heads of the 20 local banks also reiterated the importance of closely monitoring the local credit markets and offering as much support as possible to assuage market anxieties and uncertainties.
The FSC chairman expressed gratitude for the banks' liquidity provision efforts, while urging them once again to do their best to ensure a smooth supply of liquidity.
"Now is the time that both the financial sector and the government join hands to address difficulties, efficiently using all of our capabilities," Kim said at the meeting, asking the bank leaders to take on more proactive roles in stabilizing the entire financial system, beyond the banking industry.
The top financial regulator head also asked the banks to manage their foreign exchange liquidity risks.
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