Gov¡¯t to reexamine market stabilization

Concerned that mid-sized companies may experience a credit crunch in the second half during the process of corporate and financial sector restructuring, the government will disclose its financial market stabilization plan for the Thanksgiving period sometime next week.

An official of the Financial Supervisory Commission (FSC) revealed that since Lee Keun-Young arrived as new chairman, the FSC has been devising a plan to stabilize the financial market. Apparently, a detailed blueprint is to be disclosed once deliberation with the Ministry of Finance and Economy, Bank of Korea, Small and Medium Business Administration and other related agencies is completed.

The plan, designed by the FSC, has incorporated elements from a completed interim review of financial market measures implemented until now and indirect financial support measures for mid-sized companies.

Firstly, the partial guarantee limit for corporate bonds will be raised from the current 500 billion won level to 1 trillion won and the guarantee limit may be raised additionally after observing the outcome. In addition, in order to increase the guarantee limit for small- and medium-sized enterprises (SMEs), interim and special guarantees will be augmented while a credit rating company specializing in SMEs is to be fostered.

The Korea Credit Guarantee Fund currently has only 100 billion won in funds to guarantee notes, but this will be increased to 300 billion won. At the same time, the limit per transaction will be raised from 800 million won to 3 billion won. Guarantees will also be provided to construction companies, which are currently encountering considerable hardship.

In anticipation of an increased demand for funds before Thanksgiving, BOK will pump liquidity into the market by purchasing 5 trillion won worth of national/public bonds from financial institutions on a repo basis.

In particular, to promote credit-based loans, the FSC has devised a plan to not hold financial institution staff accountable for distressed assets.

An FSC official noted that instead of introducing stringent new measures, a plan focusing on mitigating surrounding conditions to enable the financial system to function properly has been formulated.