Consecutive Ultra-Low Interest Foreign Debt Issuance by National Policy Banks... August Foreign Currency Deposits Also at Record High

Korea Development Bank Issues $200 Million
Export-Import Bank Also Issues $1.5 Billion

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] Following the government's issuance of $1.45 billion in Foreign Exchange Stabilization Fund Bonds (Oe-pyeong-chae), national policy banks are also consecutively issuing ultra-low interest foreign currency bonds.

According to the financial industry on the 19th, the Korea Development Bank issued $200 million (approximately 230 billion KRW) in foreign currency bonds linked to the 1-day Repo rate (SOFR) collateralized by U.S. Treasury bonds this week. The bond maturity is 1 year and 6 months, with an interest rate at SOFR+55bp. SOFR is presented as an alternative benchmark rate to the London Interbank Offered Rate (LIBOR), which is scheduled to be discontinued in December next year.

The Export-Import Bank of Korea also issued $1.5 billion in foreign currency bonds. They issued three types of foreign currency bonds: $400 million 5-year dollar bonds, $500 million 10-year dollar bonds, and €500 million euro bonds. Notably, the 3-year euro bonds were issued at a negative interest rate (-0.118%), significantly lowering the borrowing costs through the Export-Import Bank's foreign currency bonds.

As the government's issuance of Oe-pyeong-chae leads to ultra-low interest foreign currency bond issuance by national policy banks, it is highly likely that domestic companies' foreign currency financing will also become easier. Typically, when corporate foreign currency bond issuance increases, foreign currency deposits also rise.

The scale of foreign currency deposits held by residents in Korea has already broken records for three consecutive months. According to Bank of Korea statistics, as of the end of August, the balance of residents' foreign currency deposits at foreign exchange banks reached $88.54 billion, an increase of $1.14 billion compared to the end of July. This is the highest ever recorded. Since recording $84.53 billion in June, the largest scale has been renewed for three consecutive months. By deposit holder, individual foreign currency deposits decreased by $160 million to $17.55 billion, while corporate foreign currency deposits reached $70.99 billion, increasing by $1.3 billion.