BOK to release 3 trillion won in corporate funds

The Bank of Korea (BOK) will supply 3 trillion won in fresh funds to help ease the cash shortage at major companies.

The central bank also decided to buy RPs and stocks from banks to stabilize the currency and provide funds to mutual savings and finance companies that are now facing liquidity problems due the large-scale withdrawal of deposits.

In a meeting of its Monetary Board, the BOK decided to make 9.6 trillion won available to banks at a rate of 3 percent per annum, a 2 trillion won increase from the 7.6 trillion won it set aside earlier.

The limit on loans to control liquidity will be increased by 1 trillion won to 3 trillion won, according to the central bank.

The central bank also boosted the limit on total loans to 2 trillion won so that banks can increase their loans to both small and large companies.

The recipients of financial support were also expanded to major companies, other than the top four conglomerates. The banks will offer loans to such companies and also purchase corporate bonds and corporate papers.

The central bank earlier helped banks by applying a 3-percent interest rate per annum on loans extended to small and medium enterprises. This time it had banks buy corporate bonds and corporate papers issued by major companies, thus increasing loans to them.

It also decided to introduce a system early next year to offer loans with credit sales obligations as security through an electronic method.

This system enables goods suppliers to obtain loans from their banks with the credit sales obligations as security. In this way, they can recover the prices for the supplied goods at an early date. Since the whole procedure from the application for loans to repayment are made by computer, the system is very convenient.

Central bank Assistant Deputy Governor Kang Hyong-Moon said, "The increase in the limit on total loans and liquidity adjustment funds to 3 trillion won is somewhat burdensome in terms of currency control. But we decided to sharply raise the corporate funds because resolving the liquidity problems is more urgent."

Kang added that small and medium companies' loans from mutual savings and finance firms amounted to 9.987 trillion won as of the end of October and that the increase in the limit on banks' total loans would enable the banks to take over such loans.

Hong Chan-Sun hcs@donga.com