Financial Stability
The Financial Supervisory Service (FSS) mentioned on February 15 that Korean banks’ foreign currency liquidity and borrowing conditions are still stable in spite of the North Korea risk and European banks’ deteriorating performances.
According to the organization, Korean banks maintained a three-month foreign currency liquidity ratio of 108.1% as of the end of January this year, much higher than its guideline of 85%. “We recently conducted a stress test with the banks and found that each of them can withstand a financial crisis situation for at least three months,” it said.
It added that their short-term and long-term foreign currency loan refunding rates for the same month reached 161.4% and 92.4%, up 67.6 percentage points and 3.5 percentage points, respectively. Last month, the average additional interest rates were 0.027% for short-term loans and 0.047% for long-term ones while the ratio of short-term borrowings fell from 17.0% to 16.7% between the end of 2014 and the end of last year.
“The high refunding rates mean that Korean banks are doing a good financing job in the global financial market as of late,” the FSS explained, continuing, “The conditions can be said to be stable with the average additional interest rates showing no fluctuation as well.” It added, “Korean banks’ short-term borrowing ratio has shown no significant change since 2013 whereas the ratio used to exceed 30% during the past financial crises.”
The FSS also said that Korean banks are rather distant from the European banking risk because they have a low level of exposure while maintaining a high level of soundness. At present, the exposure totals US$7.4 billion, equivalent to 5.5% of the total external exposure.