Local banks report drop in foreign currency loans

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Local banks report drop in foreign currency loans

Korean banks have reported a large decline in foreign currency loans last year compared to the previous year, mainly due to the rising value of the Korean won, the Financial Supervisory Service said yesterday.

According to the FSS, the total of foreign currency loans reached $29.9 billion in 2012, a 15.8 percent drop from the previous year’s $35.5 billion.

Foreign currency loans have been on the decline since reaching $43.1 billion in 2008, especially after the government took measures in June 2010 to limit lending.

By currency, loans denominated in United States dollars dropped by $2.6 billion to $16.69 billion last year, while those in Japanese yen sank by $2.85 billion to $13.09 billion.

“The drop picked up steam last year compared to the previous year because of the strong won, which allowed borrowers to pay back their foreign-currency debts without refinancing them,” said Uhm Il-yong of the FSS. “The drop in the volume of foreign currency loans was also due to the stagnant condition of industries like shipbuilding and overseas construction.”

The FSS data showed the local currency rose 7.7 percent against the greenback and 19.1 percent against the yen last year with a corresponding increase in the level of Korean credit and the expansion of quantitative easing in developed countries.

The loan delinquency rate of Korean banks also dropped 0.5 percentage point from 1.33 percent to 0.83 percent compared to the previous year, mainly due to aggressive efforts by banks to wipe out bad debt.

By Lee Eun-joo [angie@joongang.co.kr]
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