South Korea's short-term foreign debt declined to its lowest level in more than six years in the second quarter, the central bank said Wednesday, helping improve the country's capacity to service external debt.

The country's short-term external debt totaled $119.6 billion as of the end of June, down $2.6 billion from three months earlier, according to the Bank of Korea (BOK).

It marked the lowest level since the fourth quarter of 2006 when short-term foreign debts hit $113.7 billion.

The second-quarter data also marked the fourth straight quarter of declines, indicating that the structure of the country's foreign debt has improved.

The country's total external debt amounted to $411.8 billion as of end-June, up $1.5 billion from three months earlier as foreign investors bought longer-dated central bank bonds and commercial bank debts.

The BOK said that the short-term foreign debt fell last quarter as local branches of foreign banks borrowed less from overseas and companies' use of trade-related credits shrank due to tepid imports.

"The ratio of short-term foreign debt against the total debt declined in an indication of improving structure of Korea's external debt," Kim Young-hun, the head of the BOK's international investment position team, told reporters.

The falling trend of the short-term external debt helped boost Korea's capacity to service its foreign debt, the BOK said.

The rate of the short-term debt against the country's total debt reached 29.1 percent as of the end of June, the lowest since 28.6 percent in the third quarter of 1999.

The ratio of the short-term debt against the foreign reserves came in at 36.6 percent, the lowest since 34.6 percent in the first quarter of 2006.

South Korea's ratio of the short-term debt against the external debt has largely stayed below the corresponding rates by other emerging countries, according to the BOK.

As of end-March, the rate for Malaysia and Hong Kong stood at 47.9 percent and 72 percent, respectively. Singapore's short-term foreign debt accounted for 81.4 percent of its total debt while Indonesia's ratio came in at 17.9 percent.

Despite speculation over the Federal Reserve's stimulus tapering, foreign investors have snapped up Korean bonds as such assets are seen as relatively safer than bonds sold by other emerging markets.

Some emerging markets such as India and Indonesia are suffering from sharp weakness in their currencies and sustained deficit in the current account amid concerns over foreign capital flights.

The finance ministry said that Korea's capacity to repay foreign debt has been improving, but it will closely monitor the financial markets to brace for potential outflows of foreign bond funds amid the Fed's tapering risk.

The government, the BOK and the financial regulator are raising the level of their monitoring on market movements with plans to advise local financial firms to refrain from making excessive overseas borrowing, officials say.

Korea's high short-term foreign debt used to be a major headache whenever a financial crisis occurred as a surge in foreign debt left local banks vulnerable to external shocks.

Since the 2008 global financial crisis, Korea has boosted its FX reserves to near $330 billion and implemented macroprudential measures to curb excessive cross-border capital movements, but it is still exposed to risks of volatile capital flows.

"The surplus run of the current account and the accumulation of the FX reserves boosted Korea's leeway to defend the economy against external shocks," said Jun Min-kyu, an economist at Korea Investment & Securities. "But as the country is still exposed to volatile capital flows, the government should continue to monitor banks' foreign currency liquidity conditions."

South Korea's net external credit reached $140.3 billion as of end-June, up $6.1 billion from the preceding quarter, it noted. (Yonhap News)