By Lee Hyo-sik
Staff Reporter
Banks will be allowed to extend credit beyond the current legal limits to cash-strapped companies that borrowed foreign currency-denominated loans.
The measure is aimed to help foreign-loan borrowers, who need new funding in the wake of the ongoing liquidity shortage but cannot get fresh loans due to their outstanding credit balance surpassing the limit set by lenders due to the strengthening of the dollar and other currencies against the won.
Even though businesses have not taken out new loans in recent months, credit balances have jumped sharply in terms of the won, as the value of their existing dollar- and yen-denominated loans soared on the falling local currency, making them ineligible for new credit.
Yook Dong-han, director general of the economic policy bureau at the Ministry of Strategy and Finance, told reporters that economic policymakers from Cheong Wa Dae, the finance ministry, the Bank of Korea and the Financial Services Commission (FSC) have discussed steps to help domestic firms that cannot receive new loans because of the increased value of their existing foreign currency-denominated loans.
``Policymakers held a meeting at Cheong Wa Dae Tuesday to ease rules governing banks' lending standards. Under the law, domestic lenders are prohibited from extending credit over a certain limit to one entity, in a bid to help them better manage risk and maintain financial soundness,'' he said.
Currently, commercial banks are not allowed to extend more than 20 percent of equity capital to one company and more than 25 percent to a business group.
Yook said there are many companies that are in need of new loans amid the ongoing credit squeeze and worsening business conditions. ``But they are facing difficulties in borrowing, as their debt exceeded limits set by financial firms because of foreign currency loans. To help viable companies cope with a temporary liquidity shortage, something has to be done,'' he stressed.
Yook said the FSC is currently working on details and plans to announce a range of credit easing measures Friday.
Analysts say it will be unlikely for the regulator to ease the credit limit of lenders because it requires a revision of the law governing the banking industry, while increasing the ceiling could have a negative impact on banks' financial soundness.
They say the most likely scenario will be that FSC will decide on a case-by-case basis to allow companies to apply for exemptions to the credit limit.
The measure is the latest in a series of government efforts to help cash-strapped local businesses in the wake of the ongoing credit shortage and deteriorating economic conditions.