Korea: '54% of banks’ borrowing from Europe'

Πηγή: Korea Times
By Kang Seung-woo

Dec 1 2011

Korean banks are heavily dependent on Europe in their overseas borrowing, as more than half of their debts stemmed from counterparts on the continent in the first half of this year, data showed Thursday.

Given that the eurozone sovereign debt crisis is still raging, the heavy European reliance is raising concerns of a possible liquidity shortage of foreign currency.

According to the Bank for International Settlements (BIS), Korean banks’ borrowing from European banks recorded $187.25 billion, accounting for 53.6 percent of their total debts of $349.46 billion as of the end of June.

By country, Britain was the largest lender with $100.48 billion, followed by France with $32.58 billion and Germany with $19.95 billion, according to the BIS.

Market watchers are worried that Asia’s fourth-largest economy may suffer a lack of foreign currency liquidity if Europe’s debt turmoil spreads to other countries and the continent’s lenders try to take back the money.

“Austria recently decided to limit loan extensions to Eastern Europe. This shows that countries with top credit ratings may move to reduce overseas liquidity in a bid to retain their grades," Lee Seung-ho, a researcher at the Korea Capital Market Institute, was quoted as saying by Yonhap News Agency.

He also said that local firms and financial institutions have to make efforts to maintain their foreign currency liquidity ratio at an optimum level if European banks request their money in a worst-case scenario.

The data comes as the eurozone debt problems are causing a headache for neighboring countries, showing signs of spreading to France and Germany, the top two strongest economies in the region.

Earlier this year, with the financial turmoil hitting the markets hard, President Lee Myung-bak told banks to diversify their financing sources to include more Middle Eastern loans, rather than just relying on Europe.

However, the nation’s financial watchdog said that the borrowing from Europe is currently manageable.

“If the European debt problem enters a dangerous phase, euro funds can exit Korea, but as most debts have contracts, it is hard for them to be called in ahead of their expiration,” said an official of the Financial Supervisory Service (FSS).

“But the FSS is encouraging banks to lower their dependence on Europe in their borrowing following the region’s crisis.”