Korea plans to set up a second line of defense for its foreign currency liquidity by prompting local state-run lenders to further secure such liquidity to brace for the eurozone debt crisis, an official said Sunday.

The move came as the deepening eurozone debt crisis may squeeze local banks’ foreign currency liquidity situations.

“Since late last year, the country’s four state-run lenders have scurried to secure FX liquidity,” said an official at the Financial Services Commission. The four banks mentioned are Export-Import Bank of Korea, Korea Development Bank, the Industrial Bank of Korea and policy lender Korea Finance Corp.

Local commercial banks are estimated to have secured around $27 billion since the second half of last year and the government said that it will prompt the four state-run agencies to obtain about $8 billion in FX liquidity.

At the height of the 2008 global financial storm, Korean banks, once saddled with high short-term external debt, had difficulties refinancing foreign currency loans or securing FX liquidity, as foreign capital fled the country en masse.

By learning from the past experience, local banks have been making efforts to expand their lines of FX liquidity and to overhaul the practice of lending over the long haul by borrowing short-term loans. 

(Yonhap News)