Eased debts put banks in better shape

Korean banks’ overseas borrowing conditions continued to improve in October, as they repaid maturing debts with their existing ample foreign currency liquidity amid favorable overseas borrowing conditions, the financial regulator said yesterday.

The long-term refinancing rate of 12 local banks stood at 21 percent last month, sharply down from 97.8 percent in September, according to the Financial Supervisory Service.

A bank’s long-term refinancing rate measures the percentage of its new borrowing against foreign currency debts that mature in more than one year. A rate of more than 100 percent indicates lenders have borrowed more fresh loans instead of refinancing their maturing foreign debts.

The figure has nosedived for the second straight month since it came in at as high as 437 percent in August.
The corresponding rollover rate for 16 banks’ short-term debt reached 93.2 percent in October, up from 91 percent the previous month, the FSS said.

The watchdog cited abundant foreign currency liquidity held by banks that reduced the need for borrowing fresh funds.

The FSS noted improved global conditions, including Spain’s retained sovereign rating and better U.S. economic indicators, lent support to easing uncertainties in overseas borrowing markets. The cost of hedging credit risks on corporate or sovereign debt also fell sharply, reflecting a favorable borrowing climate. The spread on credit default swaps for Korea’s five-year dollar-denominated bonds stood at 67 basis points as of end-October, down 19 basis points from a month earlier. A basis point is 0.01 percentage point.

Meanwhile, banks’ cumulative refinancing rate for long-term and short-term debts stood at 89.8 percent and 119.5 percent in the January-October period, respectively, the regulator said.

Yonhap