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Banks’ foreign currency liquidity sound: regulator

Aug. 8, 2011 - 18:50 By
South Korean banks have no problems with their foreign currency liquidity conditions, the top financial regulator said Monday, downplaying the significance of a regulatory probe into them.

The Financial Services Commission and its executive body, the Financial Supervisory Service, have created a task force to look into 12 local lenders’ foreign currency liquidity conditions and required them to craft contingency plans to brace for global financial turmoil, sparking fears that the industry may be facing problems.

“Banks’ foreign currency liquidity has greatly improved from the past. There doesn’t seem to be big problems in many aspects,” FSS Gov. Kwon Hyouk-se told Yonhap News Agency.

“(The special task force) was established as part of efforts to brace for the worst situation, not because there are existing problems,” Kwon said.

South Korea’s foreign exchange reserves reached $311.03 billion as of the end of July, hitting a fresh high.

But it is believed that unexpected external shocks could plunge the country into a foreign currency crunch because Korean banks, saddled with high short-term debt, faced difficulties in securing foreign currency liquidity in the height of the 2008 global financial meltdown.

Meanwhile, the FSS head said the recent downgrade of the U.S. credit rating and its sovereign debt issues aren’t likely to lead to a global credit crunch crisis as seen in 2008.

South Korea’s real economy data is strong and financial firms’ asset health and profitability are also sound, he said, adding there is no reason to aggravate jitters over the ongoing situation. 

(Yonhap News)