Banks put lid on yen loans to ease risk

Korean banks’ yen-denominated loans have been on the decline since 2008 on the back of the country’s steps to limit foreign currency loans to overseas use, the financial watchdog said yesterday.

Local banks’ yen loans amounted to 1.17 trillion yen ($14.2 billion) as of the end of September, down from 69.7 billion yen at the end of last year, according to the Financial Supervisory Service. They fell 21.6 percent compared with the end of 2008.

Banks’ yen loans to residents have been on a sustained decline since 2008, as the country has limited foreign currency loans to overseas use by banning local banks from extending such loans if they are eventually used for domestic capital investment.

As the yen is widely seen as a safe asset, the Japanese currency tends to gain ground when economic uncertainty heightens.

But in the second half of this year, the yen weakened against the Korean currency on the back of Japan’s monetary easing, but experts said that a reversal of a weaker yen could give debt-serving burdens to Korean borrowers who take out yen-denominated loans.

The Korean currency appreciated 14.7 percent against the Japanese currency from a yearly low of 1,514.6 won to 100 yen on Jan. 10 as Japan has pumped massive liquidity into the financial system while Korea’s sovereign rating was upgraded.

The FSS said the delinquency ratio for such lending stood at 1.48 percent as of the end of September, up from 1.37 percent at the end of last year.

The watchdog said that it will continue to keep close tabs on local banks’ practice of extending yen loans and call for them to dispose of sour foreign currency debt as planned.

Yonhap