Seoul Bond Yields Fall, Spurring Bank Interest In New Debt Offerings

Local commercial banks are tapping the bond market to raise capital. The yield on the benchmark three-year government note is at its lowest level in a year, and institutional investors are looking for higher-yield instruments.

Shinhan Bank said Tuesday that it will issue a total of 1.15 trillion won ($916 million) of financing bonds this year, with various maturities and yields, including last Friday's successful float of one-year maturity instruments worth 300 billion won at 5.73 percent per year. "Although the offered yield was low, the bonds were sold out in just three minutes," a Shinhan official said.

Kookmin Bank is also planning a 1.11 trillion won issue this year, after an earlier issue of 65 billion won.

H&CB has issued 580 billion won of bonds at an annual 5.59 percent to 6.1 percent yield so far this year, while the Industrial Bank of Korea plans a 4 trillion won offering. KorAm Bank has decided to float 200 billion won of debts before October, and Chohung Bank will launch a 100 billion won issue around March. Korea Exchange Bank is also mulling a 1.2 trillion won debt issue in case its planned sale of new shares is not successful.

Experts say that lenders are rushing into the bond market because new debt costs less than new time deposits.

"Customers can benefit from such moves because if banks' financing costs are lowered by bond issuances, profitability will improve and lending rates can come down," said an official at the central bank.

by Kim Hyun-chul