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S. Korean banks hold sufficient FX liquidity
2012.11.14 10:00:30 | 2012.11.14 15:21:04
South Korean banks are markedly slashing back their mid to long-term foreign exchange (FX) borrowings amid the global economic recession. This is because FX liquidity is sufficient in the local financial market and FX funding conditions are improving thanks to the nation’s upgraded sovereign credit ratings.

[S. Korean banks hold sufficient FX liquidity ] 기사의 본문 이미지

Local banks’ rollover rate for mid to long-term FX borrowings recorded 21 percent, down 76.8 percentage points from 97.8 percent last month, according to data released by the Financial Supervisory Service (FSS) Wednesday.

Meanwhile, the rollover rate for short-term FX borrowings grew 2.2 percentage points to 93.2 percent.

A rollover rate measures a bank’s refunding condition, and the rollover rate of 100 percent means that fresh borrowings are equivalent to soon-to-be maturing debts.

The credit default swap (CDS) premium on the Korea’s sovereign bonds with five-year maturities, which is an indicative of sovereign credit risks, dropped 19bp to 67bp (bp, 1 bp=0.01 percent)

The CDS is a financial derivatives product that insures against the event of loan default for corporations or sovereign nations. Lower CDS premium points to higher confidence in the nation's economy and lower costs of overseas bond issuances.

Spreads on short-term and long-term FX borrowings dropped to a yearly-low.

Spreads on short-term FX borrowings slid 3.3bp on-month to 2.6bp while spreads on one-year borrowings declined 26bp to 76bp.

[Written by Youngsang-Ryu - Jieun Lee/ edited by Soyoung Chung]

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