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More than half of banks’ foreign debts come from Europe

More than half of the debts South Korean lenders borrowed overseas were from European banks, data showed Thursday, raising concerns about a possible foreign liquidity drain amid the spiraling eurozone debt crisis.

As of end-June, South Korean lenders’ borrowing from European banks stood at $187.3 billion, or 53.6 percent of its total $349.4 billion foreign claims, according to the data by the Bank of International Settlements.

By country, Britain was the largest creditor with $100.4 billion, followed by France with $32.6 billion and Germany with $18.7 billion, the data showed.

The large debts owed by South Korea raise concerns that European lenders may withdraw their funds in a bid to reduce risks amid persistent eurozone woes.

“Austria recently decided to limit loan extensions to Eastern Europe. This shows that countries with top credit ratings may move to reduce overseas liquidity in a bid to retain their grades,” said Lee Seung-ho, a researcher at the Korea Capital Market Institute.

Lee added that local institutions should step up measures to manage their foreign currency liquidity as European banks may opt to withdraw their funds in the worst-case scenario.

However, others said despite concerns over a liquidity strap and European banks’ deleveraging, local banks have the mettle to counter such moves.

“If the eurozone debt crisis spreads, it is likely to impact the liquidity status of banks. But given South Korean lenders’ refinancing rate of mid and long-term loans as well as foreign currency liquidity, problems are unlikely to worsen,” said another official at a local think tank.

In October, a total of 12 local banks refinanced 299.3 percent of their maturing mid and long-term foreign debt through fresh borrowing, up from 186.6 percent a month earlier, according to the data by the Financial Supervisory Service. 

(Yonhap News)
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