South Korea injects US $4bn into banking system to improve liquidity

According to IHT, the outlook for major companies in South Korea was the worst in 11 years because of the difficulty in borrowing from increasingly tight-fisted banks and weakening markets. The economic slump is more serious than has been thought

South Korea Government moves to improve liquidity after Korean banks have been hit especially hard by the global downturn because of their reliance on short-term credit markets and have become increasingly reluctant to risk loans to local companies as the economy loses strength.

The Central Bank announced it would tap its US $30 billion credit line that was supplied by the Fed in October, to inject US $4 billion into banking system through an auction on Tuesday. The Bank of Korea has spent $10.2 billion since October to supply foreign currency liquidity to credit-strained local traders through swap deals, depleting its foreign reserves.

South Korea has produced $25.5 billion of capital account deficit in October as a result of foreign exchange contract losses.

According to Breitbart, South Korea has become a net debtor for the first time in eight years as of the end of September, the central Bank of Korea said Friday. The country's foreign debt reached $425.9 billion at the end of September, compared with $420.6 billion three months earlier. Credit owned by South Korea reached $399.9 billion, down from $422.3 billion three months earlier, the bank said.

Even the current account swung into a surplus for the first time in four months to reach its highest level in almost four years, but at $3.41 billion did little to offset the hit on the capital account. The surplus is expected to narrow to about $1 billion in November, with falling commodity prices helping to offset weakening exports.

South Korea's central on November 11, has signed a 63-day repurchasing agreement to buy 1 trillion won (755.9 million U.S. dollars) worth of bank and other special bonds. In the previous day, Fitch had downgraded several emerging countries, including South Korea.

The Bank of Korea on November 7, lowered interest rates for the third time in four weeks after a flurry of deep rate cuts across Europe failed to calm panicky investors. The bank reduced the key rate by 25 basis points to 4 percent, the lowest since 2006, adding to 100 basis points of cuts in October.

ETFs/Stocks :

iShares MSCI South Korea Index Fund  EWY  $23.40

Related Posts :

Bank of Korea buys banks bond through repurchase agreement
Fitch Downgrades Several Emerging Markets

Sources :

1. The International Herald Tribune: South Korea to inject billions into banks through U.S. credit line, November 28, 2008
2. Breitbart: S. Korea becomes net debtor for 1st time in 8 years+, November 28 03:07 AM EST

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