Flight to safety hits Korean stocks following U.S. bank failures

Finance

Published: 14 Mar. 2023, 17:31 Updated: 14 Mar. 2023, 19:11

Flight to safety hits Korean stocks following U.S. bank failures

Customers lined up for admittance at the Silicon Valley Bank in Santa Clara, California on Monday. [YONHAP]

Korean stock fell broadly as fears about bank runs in the United States continued to rattle investors globally, although the won remained relatively stable on hopes for accommodative U.S. monetary policy.

Silicon Valley Bank (SVB) was taken over by the U.S. FDIC on Friday, and that has precipitated manic moves in the markets as at least one more bank has been shuttered and others have been hit hard by runs by depositors and falling stock prices.

Fears of a domino of runs and failures remain despite an all-out effort by authorities to calm the markets.

On Tuesday, the Kospi declined 2.56 percent — the biggest drop since Sept. 26 — and the Kosdaq 3.91 percent. The won declined 0.71 percent against the dollar. The falls in the stock markets were led by foreigners unloading stock, selling 638 billion won ($487 million) of Kospi shares and 244.68 billion won of Kosdaq shares.

Financial shares were hit hard. Shares of KB Financial Group fell 3.78 percent, Hana Financial Group 3.86 percent, Woori Financial Group 3.42 percent and Shinhan Financial Group 2.64 percent.

The market closed higher Monday as stocks globally rallied on swift action by the Federal Reserve and U.S. authorities.

SVB is the biggest U.S. lender to fail in more than a decade, since Washington Mutual went under in 2008. It was the 16th largest U.S. lender as of the end of last year, with about $209 billion in assets.

Crypto-friendly, New York-based Signature Bank was shut by regulators on Sunday, and California’s Silvergate announced its impending liquidation last week. Concerns are mounting over regional banks, like San Francisco-based First Republic Bank. Its stock plunged around 60 percent on Monday despite raising around $70 billion of funding from the Fed and JPMorgan Chase.

Electronic display boards at Hana Bank in central Seoul show Tuesday's market. [NEWS1]

The market closed higher on Monday “because the U.S. government’s swift response was considered appropriate by the market, but it fell rapidly on Tuesday as people moved their assets to safe havens,” said Shin Earl, an analyst at Sangsangin Investment & Securities.

“The noise in the market is expected to last for a while because we are in the process of raising the policy rate, which is the time when sensitivity grows.”

The Federal Open Market Committee meeting is scheduled to start on March 21. The announcement of the February Consumer Price Index will be made on Tuesday in the United States.

Financial regulators reiterated on Tuesday that the impacts of the recent collapse of the U.S. banks remain limited for now.

“The asset liquidity structure of domestic financial institutions is different from that of Silicon Valley Bank,” said the Ministry of Economy and Finance following a meeting by chiefs of financial regulators on Tuesday. They said the institutions have a favorable level of liquidity that is sufficient enough to be able to endure “temporary shock.”

Only 18 percent of their assets are securities, while the proportion at savings banks is less than 10 percent. The loan coverage ratio at all banks exceeds 100 percent.

“Exposure to key domestic financial institutions and institutional investors, including the four major pension funds, KIC and KoreaPost, are understood not to be relatively big, so the direct impacts are projected to be limited at this point,” the ministry added.

BY JIN MIN-JI [jin.minji@joongang.co.kr]