South Korean financial companies have taken out US$18 billion (21.20 trillion won) worth of loans from Japanese counterparts, with 40 percent of them coming due within a year. Financial authorities believe that while Japan is less likely to expand its economic retaliation to the financial sector, there will be little impact even if it does. However, there will be an increasing amount of Japanese and global capital leaving the country, if Japanese financial firms refuse to roll over the debts. As a result, domestic financial companies can face unexpected unfavorable conditions, including a temporary increase in procurement interest rates.
The amount of Japanese loans provided to South Korean banks, securities companies and specialized credit financial companies totaled US$18.04 billion (21.24 trillion won) as of the end of June, according to a report submitted by Kim Jong-suk, a lawmaker from the main opposition Liberty Korea Party on July 22. The size of Japanese currency loans offered to domestic commercial banks was revealed before, but it is the first time that the total amount of Japanese currency borrowings of the whole financial industry, including specialized credit financial companies and securities firms, has been unveiled. By sector, banks showed the highest amount of loans with US$9.26 billion (10.90 trillion won), followed by specialized credit financial companies with US$8.30 billion (9.77 trillion won) and securities firms with US$480 million (565.20 billion won).
In particular, US$7.21 billion (8.49 trillion won), or 40 percent of the total Japanese currency borrowings will mature within a year. Banks have to pay back US$5.43 billion (6.39 trillion won) of loans in a year. Out of the total loans, US$3.97 billion (4.67 trillion won) will come due by the end of this year.
Financial authorities have not revealed the amount of loans by maturity period, saying it can stir up unnecessary unrest in the financial market. However, the fact that 40 percent of Japanese currency loans will mature within a year is causing concern.
Financial Services Commission Chairman Choi Jong-ku said that there is a low chance that Japan will impose economic retaliation on the financial sector, adding that even if it does, the impact will be negligible. Yet critics pointed out that Choi took the matter too lightly. Choi said, “South Korea’s financial sector is not heavily dependent on Japan in general and Korea has sufficient foreign exchange holdings. The effect will be limited even if Japan takes retaliatory measures on the financial sector.”