Wednesday, December 19, 2018
S. Korean Banks’ Short-term Foreign Debts Increase Rapidly
A Red Flag for Korean Economy
S. Korean Banks’ Short-term Foreign Debts Increase Rapidly
  • By Yoon Young-sil
  • December 4, 2018, 11:12
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Foreign currency liabilities of domestic depository institutions including commercial banks showed a rapid increase in the past year.

Foreign debts of domestic depository institutions, including banks, have reached the US$190 billion (210.9 trillion won) mark. In particular, the current portion of foreign currency debts nearly doubled over a one-year period. Some analysts see it as a red flag for the Korean economy as it can become a detonator when the Korean currency depreciates in value.

According to the Bank of Korea (BOK) and the Financial Supervisory Service (FSS) on Dec. 3, foreign liabilities of domestic depository institutions including commercial banks showed a rapid increase in the past year. The amount of foreign debts of depository institutions came to US$191.8 billion (213.3 trillion won) in the third quarter this year, exceeding US$187 billion (208 trillion won) of debts in the third quarter of 2015. The foreign debts passed the US$190 billion (211.24 trillion) mark for the first time in three years after US$192.5 billion (214.02 trillion won) in the second quarter of 2015.

The increase is attributed to expanded foreign investment in Korean government bonds and foreign currency securities issuance in other sectors as well as the rise in foreign borrowings in the banking sector.

Domestic banks have continued to show a growing trend in foreign debts for over a year. The amount of foreign debts of domestic savings institutions recorded US$171.9 billion (191.05 trillion won) in the second quarter last year but the figure grew by more than US$4 billion (4.45 trillion won) to US$176.2 billion (195.83 trillion won) in the third quarter and to US$176.7 billion (196.38 trillion won) in the fourth quarter. It surpassed the US$180 billion (200.03 trillion won) mark with US$182 billion (202.26 trillion won) in the first quarter this year, continuously showing a steady increase. The amount of foreign debts rose by over US$7 billion (7.78 trillion won) to US$187.8 billion (208.66 trillion won) in the second quarter and increased by about US$4 billion (4.45 trillion won) to US$191.8 billion (213.11 trillion won) in the third quarter, exceeding the US$190 billion (211.24 trillion) mark.

In addition, the amount of current portion of debts in foreign currency, which are about to mature, nearly doubled in the past year. According to the FSS, the current portion of debts in foreign currency from 19 South Korean banks stood at US$7.55 billion (8.39 trillion won) as of the end of June this year, up US$2.8 billion (3.11 trillion won) from US$4.79 billion (5.32 trillion won) a year earlier. Among the Export-Import Bank of Korea (Exim Bank), Jeju Bank and Kwangju Bank, which are the banks subject to the disclosure, the Exim bank accounted most of the increase as it saw its current portion of debts in foreign currency grow from US$4.6 billion (5.11 trillion won) last year to US$7.4 billion (8.22 trillion won) this year. An official from the bank said, “The fact that the maturity date of the bonds is coming up soon can be one of the causes.”