Business | Banking
South Korean banks back bonds to fight crisis
Stocks rally on the announcement of a $7b fund as the central bank pledges to supply an additional $3b to help shore up liquidity.
- Reuters
- Published: 23:32 December 8, 2008
Seoul: South Korean banks agreed yesterday to stump up 80 per cent of a proposed $7 billion (Dh25.7 billion) fund to buy bonds, helping propel stocks 7.5 per cent higher on hopes various stimulus measures would avert the first recession in over a decade.
In other moves, the central bank said it would supply another $3 billion to local banks today from its $30 billion currency swap line with the Federal Reserve to support liquidity, while the economy minister said the government would not sit idly by and let viable firms go under.
The Financial Supervisory Service, a top regulator, has also told local commercial banks to expand their capital by a combined 11 trillion won ($7.57 billion) by early next year to strengthen their capital standing, a spokesman said.
The measures spurred foreign investors to buy local equities and pushed the won up 2 per cent against the dollar, while government bond prices edged lower on profit-taking from last week's big rally.
But expectations held firm that the central bank would deliver its fourth interest rate cut in two months at a policy meeting on Thursday to try to keep Asia's fourth-largest economy growing.
"Today's broad-based rally is largely led by economic stimulus plan expectations, following the latest moves and comments from high-ranking officials pointing to the likelihood of such steps in both the United States and South Korea," said Lee Kyoung-su, a market analyst at Taurus Investment and Securities.
US President-elect Barack Obama unveiled plans over the weekend for the largest infrastructure investment programme since the 1950s, which analysts said could top a least $500 billion, the latest effort to revive the world's biggest economy.
Like elsewhere, South Korea's policy makers have scrambled to prevent the global financial crisis from derailing the economy with a slew of measures since September, when the collapse of Lehman Brothers sent world markets and economies reeling.
South Korea has offered a government guarantee on $100 billion of foreign debt owed by local banks to shore up confidence in the banking system and 14 trillion won in fiscal spending and tax cut plans to boost domestic demand.
At a meeting hosted by the Korea Federation of Banks yesterday, the chief executives of the country's seven major lenders agreed to refrain from issuing large amounts of domestic bonds to try to get market interest rates lower and thus boost lending.
"Chief executives of banks at the meeting shared the view that banks had to make every effort to have money circulate in financial markets, now that the economic slump and slow exports are hitting small - and medium-sized companies," they said in a joint statement distributed by the federation.
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