By Kang Seung-woo
Korean banks have been flush with dollars thank to the U.S.’ quantitative easing policy.
But too many dollars is putting them in trouble, as they have difficulty calling the plentiful reserves into play due to tightened restrictions by the government.
According to sources in the financial industry on Thursday, local lenders have decided not to issue foreign currency bonds through overseas public offerings until the end of 2010.
Kookmin Bank, the nation’s largest bank by assets, does not have any plan to issue foreign bonds until the end of this year. Kookmin last issues Samurai Bonds - a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations ― in July.
Woori Bank has already secured rich foreign currency funds via foreign bond issuance in the first half of this year and Hana Bank is also in a dollar-rich condition after issuing bonds worth $900 million overseas.
The Korea Development Bank (KDB) will be in a cease-fire mode for the time being after issuing planned baht bonds worth $150 million in the fourth quarter, while Eximbank Korea does not plan to join foreign bond issuance for a while.
Thanks to the second round of dollar release by the U.S. Federal Reserve, the U.S. greenback is ample around the world and it has increased foreign currency deposits.
The balance of foreign deposits at Kookmin has been on the rise from $2.29 billion in August to $2.98 billion in October.
For Woori, its balance has increased by $3.63 million to $4.56 billion during the cited period.
“We have sufficient foreign funds now. There are not many bonds maturing soon and export and import companies’ foreign funds for payment have been growing,” an official of Kookmin Bank said.
“As foreign currency liquidity is good of late, we are deliberating on borrowing foreign currency. In addition, we redeem matured bonds rather than conversion issues,” said an official of Hana Bank.
Korea was hit hard twice by financial crisis situations sparked by sudden shifts in international capital.
Asia’s fourth-largest economy, suffered a severe foreign exchange crunch in 1997 and 1998 that required a bailout from the International Monetary Fund (IMF). The bankruptcy of Lehman Brothers in late 2008 also led to a foreign currency liquidity problem.
Despite overflowing foreign capital, the financial institutions are complaining that they cannot take advantage of them.
In mid-June, the government came up with tighter rules on currency derivatives in a bid to stabilize the local currency market by curbing sudden outflows of foreign capital.
Under the new rules, which went into effect last month, local banks are required to lower their currency derivatives holdings to 50 percent of their capital, while foreign lender must cut their forward position to 250 percent.
“Foreign funds are usually used in foreign currency lending, purchase of foreign currencies and investment in foreign currency securities, but lending and investments are on hold,” said an official of a local bank.
“There are not many places to employ foreign funds.”