The Bank of Korea (BOK) and state-run Korea Development Bank (KDB) will soon start purchasing corporate bonds, including low-rated debts, amid the pandemic-caused slump, the central bank said Friday.

The scheme was proposed in late May when KDB began purchasing such bonds from non-financial firms "in advance."

The BOK on Friday approved an 8 trillion won ($6.64 billion) loan to a special purpose vehicle (SPV), to be set up by KDB.

"The SPV is set to start purchasing subprime corporate bonds and commercial papers, including those purchased by KDB in advance, tentatively from July 24," the BOK said in a press release.

"Once the SPV begins its operation in earnest, it is expected to help finance many low-rated firms that are still facing difficulties due to reduced investment," it added.

In June, bank loans extended to large conglomerates here dropped 3.4 trillion won from a month earlier. The BOK earlier said the drop may have been caused by "improved conditions" for self-financing, at least for large companies.

Bank loans to smaller firms, which often have lower credit ratings, gained 4.9 trillion won in June. (Yonhap)