[Bank as a Pillar] ③ Actively Supporting Market Stability and Smooth Debt Restructuring

[Asia Economy Reporter Song Hwajeong] Banks have recently played a crucial role as firefighters whenever financial market issues arise, such as the bond market liquidity crunch crisis and concerns over delinquent borrowers due to interest rate hikes. By reducing bank bond issuance and faithfully implementing government market stabilization measures like purchasing commercial paper (CP), the bond market is stabilizing, and various financial supports such as maturity extensions and repayment deferrals are being provided to help borrowers who have been struggling due to COVID-19 and other factors to achieve a soft landing.

According to the Korea Financial Investment Association and others on the 21st, banks have net purchased 7.21 trillion won worth of credit bonds, including public bonds, financial bonds, and corporate bonds, from the beginning of this month to the 16th. This is more than a 46% increase compared to the net purchase volume during the same period last month. On the other hand, bank bond issuance is on a declining trend. During the same period, bank bond issuance amounted to 10.45 trillion won, most of which were issued by policy banks, with no issuance from commercial banks.

With low-cost deposits decreasing due to rising interest rates and concerns over liquidity tightening in the bond market causing corporate loans to surge, urgent funding is needed. However, banks are reducing bank bond issuance and purchasing corporate bonds to stabilize the bond market.

The five major financial holding companies announced earlier this month a plan to contribute to market stabilization through a total of 95 trillion won (tentative plan) in market liquidity and affiliate funding support by the end of this year. Specifically, this includes expanding market liquidity supply by 73 trillion won, participating in bond stabilization funds and securities market stabilization funds with 12 trillion won, and providing 10 trillion won in funding within the holding groups’ affiliates. This encompasses refraining from bank bond issuance, supplying funds to public enterprises such as Korea Electric Power Corporation (KEPCO), small businesses, SMEs, and large corporations, purchasing special bonds, credit card bonds, corporate bonds, commercial paper (CP), and asset-backed commercial paper (ABCP), repurchase agreement (RP) purchases, maintaining money market fund (MMF) operation scale, and maintaining credit lines in the secondary financial sector. To resolve the bond market liquidity crunch triggered by Legoland, the government activated a liquidity support program exceeding 50 trillion won and relaxed liquidity regulations on banks, while financial holding companies contributed by releasing 95 trillion won.

At a meeting with the Financial Services Commission chairman, the banking sector pledged, "Banks are the economic breakwater and the eldest brother of the financial sector, entrusted with a heavy responsibility," and promised, "The banking sector will play a role in stabilizing the short-term funding market."

Banks are also actively working to ensure a soft landing for vulnerable borrowers. Earlier, on July 5th, Financial Services Commission Chairman Kim Joo-hyun summoned the heads of the five major financial holding companies to the government office to emphasize the need for continuous attention and support for vulnerable borrowers. The financial holding company chairpersons pledged to actively participate in the government's financial sector livelihood stabilization policies and focus on their own financial support that can provide practical help to financially vulnerable groups.

Earlier, Shinhan Financial Group announced the 'Shinhan Together Project' in September, which will directly and indirectly support vulnerable groups with 33.3 trillion won over the next five years. NH Nonghyup Financial Group decided to provide financial support of 27 trillion won plus alpha for financially marginalized groups such as farmers and youth, as well as small business owners and self-employed individuals. Woori Financial Group and Hana Financial Group also announced support plans worth 23 trillion won and 26 trillion won, respectively.

The banking sector has continuously provided financial support to vulnerable borrowers since COVID-19. According to the 'COVID-19 Financial Support Performance' data from the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?the total amount of loans and interest extended in various forms until mid-July this year reached 168.5323 trillion won. After the additional extension of maturity extension and repayment deferral measures for small business owners, which were scheduled to end at the end of September, the banking sector provided an additional 2.6 trillion won in credit within just two weeks.

Financial Services Commission Chairman Kim Ju-hyun is taking a commemorative photo with the chairmen of the five major financial holding companies at the Bankers' Hall in Jung-gu, Seoul on the 1st. From the left, Cho Yong-byeong, Chairman of Shinhan Financial Group; Sohn Tae-seung, Chairman of Woori Financial Group; Yoon Jong-kyu, Chairman of KB Financial Group; Kim Ju-hyun, Chairman of the Financial Services Commission; Kim Kwang-soo, Chairman of the Korea Federation of Banks; Ham Young-joo, Chairman of Hana Financial Group; Sohn Byung-hwan, Chairman of NongHyup Financial Group. Photo by Kim Hyun-min kimhyun81@