Central Bank's First Ever Corporate Bond Loan
The Bank of Korea will provide a special loan of 10 trillion won based on corporate bonds. It is the central bank’s first corporate bond loan. The bank has provided no individual loan for securities companies and insurers and has provided no corporate bond loan for banks.
Specifically, the direct lending for banks, securities companies and insurers has an upper limit of 10 trillion won and will be based on AA- or higher corporate bonds. The lending will be available for three months starting from May 4, the maturity is six months, and pre-maturity redemption is also possible. The lending rate is 0.85 percentage point plus the rate of the 182-day monetary stabilization bond. The borrower-specific limit is 25 percent or less of its equity capital.
The special loan is to stabilize the corporate bond market and improve the beneficiaries’ financial conditions. As of the end of last month, 16 banks’ corporate bonds eligible for the special lending add up to approximately 11 trillion won. The amount is about four trillion won in the case of 16 securities companies and 23 trillion won in the case of six insurers.
“Although the Bank of Korea said that it would be engaged in quantitative easing, the corporate bond market is still not free from credit crunch,” HI Investment & Securities explained, adding, “It seems that the new policy is to minimize market participants’ concerns.”