South Korea’s central bank said Thursday it will swiftly provide liquidity to nonbank financial institutions if they face difficulties in financing.
In its monthly monetary meeting, the Bank of Korea (BOK) amended its loan guidelines to make it easier to lend money to local cooperative banking institutions in case of emergency.
Under the new system, the range of collateralized securities that banks entrust to the BOK for lending is expanded to include bonds issued by public institutions, banks, local governments and blue-chip companies, according to the BOK.
The amendment will allow the BOK to aid nonbank financial companies, such as MG Community Credit Cooperatives, the National Agricultural Cooperative Federation and the National Federation of Fisheries Cooperatives, in a timely manner when they suffer financing problems such as a bank run.
Currently, the BOK needs to go through an additional process to give financial relief to nonbank institutions.
The move came after MG Community Credit Cooperatives saw a sudden rise in deposit withdrawals earlier this month after data showed its delinquency ratio soared to the 6 percent level in June.
The government has created an interagency task force to prevent a bank run.
The BOK explained that banking institutions possess about 70-80 percent of their assets in forms of loan receivables, which can be used to receive financing assistance from the central bank.
It is not the first time that the central bank has eased its loan guidelines.
In November, the BOK temporarily expanded the range of collateralized securities as concerns of a credit crunch grew over a default on payment obligations of a municipal government-guaranteed asset-based commercial paper in relation to a Legoland theme park in the eastern province of Gangwon.
The central bank said the amendment will help local banks and nonbanks get an additional liquidity supply of 90 trillion won and 100 trillion won, respectively.
The new system is set to take effect next week, except for the inclusion of bonds issued by public institutions, local governments and blue-chip companies, which will be implemented Aug. 31.
Source: Yonhap News Agency