By Kim Jae-won
Staff Reporter
Local banks are moving to raise funds abroad in the months to come in order to secure foreign liquidity, on the expectation that overseas borrowing costs will rebound in the second half of this year in line with rising interest rates.
The move has spawned concerns that it will put further pressure on the appreciation of the Korean won, which will chip away at the price competitiveness of local exporters.
The Korea Development Bank (KDB) has recently issued dollar-denominated bonds worth $100 million. It plans to issue more bonds abroad.
The Export-Import Bank of Korea (Korea Eximbank) also plans to float bonds abroad before March. “Although a final decision has yet to be made, we are mulling over the prospect of issuing dollar-denominated bonds. The amount of issuance is likely to be around $1 billion,” said Kim Yoon-seok, a manager of public relations at Korea Eximbank.
Kookmin Bank, the nation’s largest lender, plans to issue Japanese yen-denominated bonds in the near future.
“We are considering issuing Samurai bonds, but we have no detailed plans as we are still in the early stages,” You Jung-youn, senior manager of the public relations department, said.
The banks’ move comes as overseas borrowing conditions have decreased considerably over the past few months in line with a fall in the risk premiums on Korean bonds due to the strengthened fundamentals of Asia’s fourth-largest economy.
Since the third quarter of 2009, the average credit default swap (CDS) premiums on the bonds of major Korean banks have fallen to around 90 basis points above the coupon rate, as of Thursday.
Korea Eximbank’s risk premium was the lowest at 87 basis points, followed by KDB at 88 and Kookmin at 89.
CDS, a barometer that measures default risks, is a vehicle for trading credit risk. The buyer of a CDS deal pays a spread to its seller in exchange for getting par value on any specified bonds or other instruments when they default.
Some analysts are expressing concern that the floating of bonds en masse could accelerate the appreciation of the won.
“If the currency market remains stable, a massive bond issuance abroad would be no big problem. But now, as the won-dollar rate has fallen drastically, regulators may take steps to control the movement,” Kim Sang-hoon, an analyst at Hana Institute of Finance, said.
The Korean won has marked the biggest appreciation against the dollar among major currencies around the world so far this year. The local currency closed at 1121.1 won per dollar, Thursday, gaining 43.4 won from the 1,164.5 won at the end of the last year.
Regulators are worried about the movement and said they cannot allow issuance of those bonds.
“We will not sit back allowing the issuance of all foreign currency bonds. We will closely monitor whether bond issuance will affect the currency market,” Shim Kyu-jin, deputy director of the Ministry of Strategy and Finance, said.