Banks’ long-term foreign borrowing costs decline

Korean banks’ long-term overseas borrowing costs fell sharply in June on the back of eased market conditions over the debt-mired eurozone, the financial watchdog said Thursday.

The spread on mid- and long-term foreign borrowing by local lenders that mature in one year stood at 93 basis points at the end of last month, sliding from 112 basis points in May, according to the Financial Supervisory Service. A basis point is 0.01 percentage point.

The spread on short-term overseas borrowing, however, gained in June as local banks sold a large bulk of global bonds, the FSS said.

The refinancing rate of 12 lenders’ mid- and long-term foreign debts stood at 77.0 percent at the end of last month, a big decline from 249.9 percent in May.
The rollover rate gauges the percentage of fresh overseas borrowing against foreign debts that mature after one year. A refinancing rate of more than 100 percent indicates local lenders have acquired more fresh foreign loans rather than refinancing their maturing foreign debts.

A total of 16 local banks refinanced 86.7 percent of their maturing short-term debts through fresh borrowing last month, compared with the 79.0 percent a month earlier, it added.

“Banks have had ample liquidity as they secured foreign funds in advance. With lower rates, we expect no bumps with foreign borrowing for the time being,” the regulator said in a release.

In June, the European Union agreed to provide direct aid using its bailout funds to troubled countries including Greece.

Meanwhile, the spread on credit default swaps for Korea’s five-year treasury bonds fell 19 basis points from a month ago to 123 basis points as of end-June. A lower CDS premium indicates a country is less likely to go belly-up. (Yonhap News)