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Yen-denominated Loans Drying Up

Posted April. 08, 2008 06:26,   


Several commercial banks in Korea have suspended yen-denominated loans in the wake of the decrease of incoming foreign currency into the country.

A financial industry source Monday said Industrial Bank of Korea stopped providing yen loans late last month. The bank has 332.9 billion yen, the largest amount among domestic commercial banks.

Hana Bank has not given out yen loans since early this month and Kookmin Bank stopped in January.

An Industrial Bank of Korea staff in charge of foreign currency lending said, “Tellers are flooded with inquiries over yen loans, but we’ve encouraged customers to lend money in won. Unless more foreign currencies are brought into the market, we cannot clearly tell when we can resume yen loans.”

As the U.S. subprime mortgage crisis has resulted in a worldwide credit crunch, Japanese banks have sharply reduced yen lending, leading to a shortage of the currency.

Another factor behind the interruption in yen loans is the Bank of Korea’s request to commercial banks to extend the maturity of corporate loans borrowed in foreign currencies.

This has led to heightened demand for yen loans. Watching the won-yen exchange rate soar last month, many corporations seek yen loans to earn a profit when the exchange rate falls.

The won-yen rate soared to 1.061.58 won per 100 yen on March 17, but fell to 950.75 won Monday. That means a person who borrowed 100 million yen on March 17, or 16.158 million won based on the rate at the time, had to repay 95.075 million won Monday, or 11.083 million won less than the original amount borrowed.

Due to the surging demand for yen loans, the amount of such loans at Industrial Bank, Shinhan, Woori and Kookmin banks posted an increase last month for the first time in 16 months, or up 8.8 billion yen from late February.

Lee Yun-seok, a researcher at the Korea Institute of Finance, said, “As regulations on foreign currency loans have eased, more have demanded foreign currency loans. The recent refusal of banks to lend foreign currencies may give difficulty to some people. However, it can be a chance to reorganize the market so as to benefit those who really need foreign currencies.”