By Na Jeong-ju
Staff Reporter
Banks need about 100 trillion won ($107 billion) to cover maturing bonds and certificates of deposit (CDs) in the first half of this year, a Seoul-based financial institute warned Sunday, cautioning about a possible capital crunch among lenders.
Cash-hungry banks may move to issue more bonds and deposit-backed warrants to raise capital on short-term money markets, causing a surge in interest rates and putting more borrowers in danger of default, according to the Korea Institute of Finance.
Government data shows more than 90 percent of bank loans are variable-rate ones, tied to the ups and downs of CD rates. In the face of dwindling consumer deposits, banks have issued more bonds and CDs to raise funds, prompting a continued rise in borrowing rates.
``The rise in maturing bonds and CDs and the growing default risks of mortgages may trigger a lot of problems on the financial market this year,'' the institute said in a report. ``Some 100 trillion won worth of bonds and CDs are scheduled to mature in the January-July period, which means banks are bound to experience a severe fund shortage amid falling deposits.''
The average CD rate had risen to the highest point in six years and eight months at 5.86 percent as of Jan. 4. Analysts say it is a matter of time for the benchmark rate for variable-rate loans to break through 6 percent.
Reflecting a rise in CD rate, private lenders have raised interest rates charged on home-backed loans and uncollateralized commercial loans.
The housing loan rates at Kookmin Bank, the country's largest lender, ranged from 6.51 to 8.11 percent as of Jan. 4, which is 1.45 percent higher on average than the end of 2006. This means those who borrow 200 million won in housing loans from Kookmin should bear additional interest of 2.85 million won ($3,050) annually.
The rising interest burden on borrowers not only raises credit default risks for households and corporations, but also makes it more difficult for financial firms to raise the necessary funds for their businesses amid financial market unease caused by the U.S. subprime woes.
The KIF and other think tanks cautioned that global financial markets may remain volatile this year.
The Samsung Economic Research Institute said on Jan. 3 the country may experience credit problems like the United States, citing surging default risks and sluggish housing markets.
``South Korean customers are finding it increasingly difficult to pay their debts due to rising interest rates and the sluggish home market,'' the institute said. ``A credit crunch could hit the country at any time if the government and financial firms fail to handle the matter properly.''