SEOUL : South Korea is considering providing state guarantees for interbank loans to stabilise shaky financial markets, Finance Minister Kang Man-Soo said Friday.

Kang said Seoul was ready to take “preemptive, swift and sufficient” measures to calm the foreign exchange market.

Comprehensive measures would be announced on Sunday, he told reporters after an urgent meeting with other senior economic officials, adding these could include state guarantees for interbank loans.

The won has been Asia’s worst performing major currency this year, falling from 937 to the US unit on January 2 to 1,334 on Friday.

South Korea, Asia’s fourth largest economy, has already taken a series of steps to prop up the currency and ease credit shortages.

The central bank said that from Tuesday it would supply dollars directly to banks suffering dollar shortages through competitive bidding in the swap market.

Currently, local banks take part in currency swap deals only through some intermediary banks.

All local banks dealing with foreign currencies would be allowed to take part in currency swap bidding through which the central bank would directly provide end-users with dollars, the Bank of Korea said in a statement.

“This new trading system will help enhance stability and predictability in the currency market,” it said.

The National Pension Service said it would expand purchases of bonds issued by local companies and banks amid the deepening credit squeeze.

South Korea’s current account deficit, rising overseas debts and the flight of foreign funds from the stock market have fuelled the won’s fall.

On Friday it closed up 2.9 percent from a day earlier, following the central bank’s move and Moody’s decision to retain the country’s credit ratings outlook.

The ratings agency said Korea is better prepared to deal with the current financial crisis than it was in 1997.

“The ratings are supported by Korea’s high economic resiliency but are tempered by a mid-range, rather than low, susceptibility to event risk,” said Tom Byrne, a senior vice president.

“Additional support comes from the economic and financial restructuring of the past decade and the accompaniment of a prudent fiscal stance and a relatively strong government balance sheet.”

Moody’s said Korea’s banking sector had “relatively high vulnerabilities” to the global crisis but “is much better positioned to weather the current crisis than that of 1997.”

Byrne said in a statement that banks in South Korea and elsewhere faced severe pressure in rolling over foreign debts.

But the government still had the resources to provide dollar liquidity to domestic banks, despite an ebbing in foreign exchange reserves which now stand at around 240 billion dollars.

Standard and Poor’s also affirmed its ratings.

The ratings agency said banks are facing increasing difficulty in refinancing their foreign currency needs and the stress on the country’s financial system is expected to be prolonged.

“Nevertheless, we anticipate that decisive policy measures will be put in place to ease domestic and foreign liquidity conditions,” it said.

“We expect the Korean government to have the financial capacity to implement measures of sufficient strength to limit deterioration in the banks’ financial performance.”

- AFP /ls

Channel News Asia

PUTRAJAYA, FRI:

The public can check outstanding loans owed to the National Higher Education Fund Corporation (PTPTN) and check their applications status via SMS starting the end of this month.

They could also lodge complaints to local authorities by sending SMSes.

The two new services would be provided by the government short messaging service (SMS) gateway, the Malaysian Administration Modernisation and Management Planning Unit (MAMPU) said in a statement today.

Complaints via SMS could be sent to the Petaling Jaya City Council, Subang Jaya Municipal Council and Klang Municipal Council.
The government SMS gateway which uses only one number, 15888, was launched in July last year.

Services available then were for checking the status of MyKad applications, land titles, outstanding government housing loans and status of National Service (PLKN) trainees.

The government SMS gateway had from Aug 1-Oct 6 recorded 423,330 transactions with checking the PLKN status highest with 409,338 transactions, it said.

New Straits Times

FRANKFURT: The European Central Bank (ECB) moved on Wednesday to make it easier and cheaper for eurozone banks to borrow dollars and Swiss francs, announcing procedural changes that one analyst called “huge.”

The measures aimed to reduce the costs of borrowing for three and six months that serve as benchmarks for a wide range of lending to business and individuals.

“This is extremely important because a lot of loans to corporations and to individuals, mortgages for example, are indexed to these kinds of maturities,” Bank of America economist Gilles Moec told AFP.

Terming the announcement “huge,” Moec said the ECB was trying “to ensure that the interest rate cut last week percolates through the system.”

A week ago, the ECB and other central banks in Europe, North America and China unveiled coordinated interest rate cuts in an exceptional effort to boost confidence amid a crisis in the international banking sector.

On Wednesday, the ECB announced a broad series of measures that increased the amount of dollars and Swiss francs available to eurozone banks, eased conditions under which they could borrow funds and reduced pressure on the interest rates they paid for them.

“What we see is no more first aid, but an open-heart surgical operation,” commented Sylvain Broyer at the Natixis investment bank.

One change that enlarged the kinds of securities accepted in exchange for the loans would help banks that might be running out of collateral they could use to borrow cash from central banks.

“We heard anecdotal evidence that some credit institutions might not have enough collateral to obtain all the liquidity they wanted,” Moec said.

But by lowering the standards on eligible collateral, the ECB did an about-face from a month earlier, when it said it would tighten criteria in light of evidence that some banks might be abusing, or “gaming” the system.

“It clearly raises some issues of credibility loss,” Moec said.

But he was impressed by the ECB’s decision to take the credit issue by the horns.

The ECB was “doing whatever it takes” to free up interbank lending, he said.

Banks have restricted lending to each other on money markets because loans are not backed up by collateral and if a borrower declares bankruptcy, the lender might never see the money again.

Money markets are critical because they determine the availability of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.

These markets first started to dry up after the US market for high-risk, or sub-prime, mortgages collapsed more than a year ago.

Now, the ECB has extended key changes in short term lending announced previously to the crucial terms of three and six months.

“All longer-term refinancing operations will, until March 2009, be carried out though a fixed-rate tender procedure with full allotment,” the ECB said.

Providing unlimited amounts of central bank funds at fixed rates should ease pressure on commercial banks, which it is hoped will use to funds to kick-start lending between themselves and to the wider economy.

The ECB will also start to lend Swiss francs for one-week periods, at fixed rates but not for unlimited amounts.

Among the kinds of collateral now accepted for dollar loans would be instruments denominated in foreign currencies such as dollars, pounds and yen that were issued within the eurozone.

A flat rate of eight percent would be deducted from their value however, in what is called a “hair cut” before the amount of dollars loaned by the ECB was determined.

Other changes meant that financial instruments formerly excluded from ECB operations would now be accepted and that the bank would accept collateral with lower credit ratings than before.

The changes are to remain in force until the end of December, a crunch time when banks have to square their year-end books.

ECB officials also published a timetable of lending operations that extended beyond that period, to March 2009. - AFP/de

Channel News Asia