Most foreign debt owed to Europe

Over half of Korean lenders’ overseas debt is held by European banks, data showed yesterday, raising concerns about a possible foreign liquidity drain amid the spiraling euro zone debt crisis.

As of end-June, local lenders’ borrowing from European banks stood at $187.3 billion, or 53.6 percent of its total $349.4 billion in foreign claims, according to data supplied by the Bank of International Settlements.

By country, Britain was the largest creditor with $100.4 billion, followed by France with $32.6 billion and Germany with $18.7 billion, the data showed.

The large debts stoke fears that European lenders may withdraw their funds in a bid to reduce risks amid persistent euro zone woes.

“Austria recently decided to limit loan extensions to Eastern Europe. This shows that countries with high credit ratings may move to reduce overseas liquidity in a bid to retain their grades,” said Lee Seung-ho, a researcher at Korea Capital Market Institute.

Lee added that local institutions should step up measures to manage foreign currency liquidity in case European banks withdraw their funds.

But others said that despite concerns of a liquidity crunch and European banks’ deleveraging, local banks can counter such moves.

“If the euro zone debt crisis spreads further, it is likely to impact the liquidity status of banks. But given the refinancing rate of mid- and long-term loans among Korean lenders, as well as their foreign-currency liquidity, problems are unlikely to be exacerbated,” said another official at a local think tank.

In October, a total of 12 local banks refinanced 299.3 percent of their maturing mid- and long-term foreign debt through fresh borrowing, up from 186.6 percent a month earlier, according to data by the Financial Supervisory Service. Meanwhile, an official at the regulator said that local banks’ exposure and foreign currency liquidity are regularly being monitored.

As of end-May, local banks had borrowed $41.8 billion, or 35.6 percent, of their total foreign currency loans from Europe, according to the FSS. The figure excludes loans taken out by local branches of overseas banks. Yonhap