FSC presses big banks over financial market stability

By Kang Seung-woo

The chief of the nation’s financial regulator stressed Tuesday that major banking groups need to behave in a ‘responsible’ manner to stabilize reeling markets amid jitters that fallout from the global financial turmoil is threatening to agitate the Korean economy.

“Financial holding firms are required to continue supporting the nation’s real economy to calm the financial markets against any turmoil,” Financial Services Commission (FSC) Chairman Kim Seok-dong said to the heads of the country’s top five banking groups. The five chiefs are Euh Yoon-dae from KB Financial, Lee Pal-sung from Woori Financial, Kang Man-soo from Korea Development Bank (KDB) Financial, Kim Seung-yu from Hana Financial and Han Dong-woo from Shinhan Financial.

“When the financial markets are shaken up by uncertainties, banking groups need to exercise leadership to help the markets withstand trouble by providing funding to companies reeling from unfavorable factors.”

The chairman said that there will be government-level support to bolster the groups’ actions.

“The government will take all possible measures in financially shoring up struggling companies by taking advantage of its policy lenders,” he said.

With the financial turmoil hitting the markets hard, President Lee Myung-bak recently told banks to diversify their financing sources to include more Middle Eastern loans, rather than just relying on Europe and the United States.

According to the FSC, as of the end of June local lenders’ loans from their European counterparts stood at $42.1 billion, accounting for 36 percent of their total borrowing of $116.8 billion, followed by Asia and the United States, which represented $40.8 billion, or 35 percent, and $32.4 billion, or 28 percent, respectively.

During the meeting, Kim echoed the government’s suggestion.

“Banks should not repeat their practice of depending on the government and the central bank when they face difficulties in foreign exchange procurement,” he said.

“It is necessary to take proactive measures by diversifying sources of foreign exchange, which currently focus excessively on Europe and the United States.”

His remarks come as the Korean financial markets have fallen victim to the volatility, sparked by Standard and Poor’s decision to strip the United States of its top-tier AAA credit rating earlier this month and the ongoing sovereign-debt crisis in the eurozone.

Kim said that despite the projection that financial problems are expected to persist for some time, Asia’s fourth-largest economy, which has previously gone through two financial crises, is likely to make it through the current problems effectively.

“Unlike the 2008 crisis, originated from the financial sector, the current situation stemmed from a structural problem in the real economy, which can prolong the recovery time,” Kim said.

“But Korea has improved in several indicators including the national debt, foreign exchange reserves and short-term debt, as well as the financial health of local banks, so we will be able to deal with the current crisis.”