Banks Sell Assets to Raise Funds
By Lee Hyo-sik
Staff Reporter
Domestic lenders have begun liquidating assets at home and abroad to raise fresh funds amid the ongoing liquidity shortage in the market.
Banks had aggressively extended loans to households and businesses to expand in size over the past year by issuing certificates of deposits (CDs) as a large number of people have taken money out of bank accounts to invest in equities amid the recent bullish market run.
With more CDs on the money market against weak demand, CD rates have increased and forced lenders to pay higher interests on CDs they issued, worsening their bottom line. Against this backdrop, local banks are now refraining from extending loans and instead are selling their assets to raise money.
Kookmin Bank, the country's largest retail lender, plans to issue asset backed securities (ABS) worth 500 billion won here next Monday. A bank official said it will be the first time for Kookmin to issue ABS on corporate bonds it holds, adding the lender will issue mortgage backed securities (MBS) abroad in the first half of the next year to raise more than 1 trillion won.
But he expressed concerns that the bank may face difficulties in raising funds because of the ongoing U.S. subprime loan defaults and the financial market instabilities across the globe.
Also, Shinhan Bank said it will issue MBS worth 1 trillion won early next year, adding its MBS will be based on fixed-rate housing loans it has extended to homebuyers since October.
Woori Bank is also considering issuing MBS and ABS to raise fresh money. ``We are currently looking into various ways to procure fresh funds. Most of all, we are considering issuing ABS on our corporate loans as we have extended greater loans to small-and medium-sized companies over the years,'' bank officials said. But they are worried that the bank may not be able to successfully sell ABS abroad as international investors may continue to shy away from securities of emerging economies amid the global financial market jitters.