Banks Reschedule Overseas Borrowings
By Na Jeong-ju
Staff Reporter
Banks have delayed their plan to raise funds by issuing bonds in overseas markets as global investors have shied away from making fresh investments in riskier assets in Asian countries amid rising concerns about U.S. subprime loans.
Bankers say it has become almost impossible for Korean banks to issue bonds in overseas markets due to sluggish global demand. Banks can borrow money from foreign banks to make up for a shortage of funds, but they demand higher interest citing financial market instability, they said.
In October, the Export-Import Bank of Korea and Nonghyup Bank raised funds of around $1.5 billion and $400 million, respectively, by issuing overseas bonds. Pusan Bank also issued bonds worth $250 million, but it had to offer additional interest.
This month, no Korean banks raised funds on overseas bond markets.
``Global demand for bonds issued by private firms has fallen due to rising concerns about a global credit crunch,'' an official of the Ministry of Finance and Economy said. ``Korean banks and financial institutions from most countries are finding it much more difficult to raise funds by issuing bonds.''
Instead, banks have issued more certificates of deposit (CDs) in the local market to raise funds, prompting a rise in interest rates on loans. CDs are one of the widely used fund-raising tools for banks, but most floating-rate loans are tied to it.
The 91-day CD rate rose to 5.47 percent, Wednesday, the highest level since July 6, 2001.
The rise in CD rates means more fund-raising costs for banks, which can have a negative impact on their asset quality. Rising CD rates also add interest costs on households and corporate borrowers.
``As it has become more difficult to issue overseas bonds, banks have issued more CDs. It is now the only way for banks to raise funds,'' an official of the Bank of Korea said.