Emergency Macro-Financial Meeting Held by Choo Kyung-ho and Lee Chang-yong
Additional Capital Call for 5 Trillion Won Scale Bond Fund
Bank of Korea Provides Up to 2.5 Trillion Won Liquidity Support
First Step in Reconstruction 'Safety Inspection' Regulations Eased This Year
Revitalizing Real Estate Market That Caused Funding Market Tightening
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, along with heads of financial authorities, are taking a commemorative photo on the 28th at the Bankers' Hall in Jung-gu, Seoul, before the Emergency Macroeconomic and Financial Meeting. From the left, Choi Sang-mok, Senior Secretary for Economic Affairs; Lee Chang-yong, Governor of the Bank of Korea; Deputy Prime Minister Choo; Kim Ju-hyun, Chairman of the Financial Services Commission; Lee Bok-hyun, Governor of the Financial Supervisory Service. Photo by Kim Hyun-min kimhyun81@
As corporate paper (CP) interest rates have recently surged sharply, exacerbating short-term liquidity issues in the market and among companies, the government and the Bank of Korea have introduced additional measures. The government will conduct an additional capital call for the 5 trillion won-scale Bond Market Stabilization Fund (BMSF), while the Bank of Korea plans to provide liquidity support of up to 2.5 trillion won in addition to the 6 trillion won repurchase agreement (RP) purchases announced last month.
On the morning of the 28th, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho and Bank of Korea Governor Lee Chang-yong held an emergency macroeconomic and financial meeting at the Bankers' Hall in Jung-gu, Seoul, where they announced these financial market stabilization policies. The meeting was also attended by Financial Services Commission Chairman Kim Joo-hyun, Financial Supervisory Service Governor Lee Bok-hyun, and Presidential Secretary for Economic Affairs Choi Sang-mok. This marked the second time in just a month that the heads of finance and economy have convened since the meeting on the 3rd.
The Ministry of Economy and Finance judged that although some uncertainties, such as corporate bond interest rate declines, showed improvement following the '50 trillion won + α' market stabilization measures announced on the 23rd of last month, the short-term funding market remains unstable. They also foresee the possibility of further financial market instability due to upcoming interest rate hikes in major countries like the U.S., sluggish real estate markets, and year-end settlements.
Reduction in Treasury Bond Issuance... Bank of Korea to Provide Up to 2.5 Trillion Won in Liquidity Support
Accordingly, to ease the burden on the bond market, the government decided to cut the originally planned treasury bond issuance for next month (9.5 trillion won) by more than half, issuing only 3.8 trillion won. Additionally, public institutions such as Korea Electric Power Corporation and Korea Gas Corporation will work with banks to reduce bond issuance volumes, stagger issuance timing, and convert to bank loans.
The BMSF will conduct a second capital call of 5 trillion won following the first capital call of 3 trillion won. To reduce the burden on contributing financial companies, the capital calls will be implemented in installments from next month through January next year. Additional support measures for non-investment grade corporate bonds related to real estate project financing (PF) and construction, as well as A2-rated CP, will also be considered.
The Bank of Korea plans to provide liquidity support of up to 2.5 trillion won, within 50% of the capital contributions, to financial companies participating in the BMSF's second capital call through RP purchases. This liquidity support is separate from the 6 trillion won RP purchases announced on the 27th of last month.
Moreover, the Bank of Korea plans to expand RP purchases again next month. Governor Lee stated that "the supplied liquidity will be absorbed through open market operations" and that "this does not contradict the current monetary policy stance."
Earlier, at a press conference following the Monetary Policy Committee meeting on the 24th, Governor Lee also said, "The concentration in the short-term funding market and asset-backed commercial paper (ABCP) related to real estate still appears excessive," adding, "If necessary, additional policies can be implemented, and in that case, the Bank of Korea will play its role."
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, along with heads of financial authorities, are attending the Emergency Macroeconomic and Financial Meeting held on the 28th at the Bankers' Hall in Jung-gu, Seoul. From the left, Choi Sang-mok, Senior Secretary for Economic Affairs; Lee Bok-hyun, Governor of the Financial Supervisory Service; Deputy Prime Minister Choo; Lee Chang-yong, Governor of the Bank of Korea; Kim Joo-hyun, Chairman of the Financial Services Commission. Photo by Kim Hyun-min kimhyun81@
Additional Relaxation of Reconstruction Safety Inspections and Registered Rental Business Regulations
The government plans to further ease real estate regulations related to reconstruction safety inspections and the registered rental business system within this year. Given the ongoing housing market slump caused by continuous base rate hikes, which is spreading to short-term funding market instability, the aim is to address fundamental issues through regulatory relaxation.
The Ministry of Economy and Finance believes that easing reconstruction safety inspection standards could revitalize local reconstruction projects, thereby aiding the sluggish real estate market. Safety inspections are the first step in reconstruction projects, but under the Moon Jae-in administration, regulations were significantly tightened to stabilize housing prices, leaving major reconstruction projects in Seoul stalled.
Regarding the registered rental business system, landlords who register as rental businesses and supply jeonse (long-term deposit-based lease) units receive benefits such as exclusion from comprehensive real estate tax aggregation. However, concerns about misuse for speculation during the Moon administration led to a significant reduction of this system to long-term registrations for non-apartment properties.
It is analyzed that relaxing reconstruction safety inspection standards and reviving the registered rental business system could inject vitality into the depressed housing market. This could also lead to a recovery in short-term funding market liquidity.
However, when asked whether there are plans to further ease the loan-to-value (LTV) ratio on housing mortgage loans, Deputy Prime Minister Choo responded cautiously, saying, "Financial regulations related to the real estate market or the real estate market itself will be judged based on market conditions, and if decisions are made, they will be introduced accordingly."
On the same day, the Ministry of Economy and Finance also announced measures to expand real estate project financing (PF) to prevent funding shortages for construction companies. First, the guarantee amount for real estate PF projects preparing for pre-sale after permits will be increased by 5 trillion won, and guarantee eligibility requirements will be further relaxed, including removing the loan interest rate cap for guaranteed loans.
A new 5 trillion won-scale guarantee product for unsold housing PF will be introduced to support PF loans for unsold projects before completion. This system was originally scheduled to be implemented in February next year but has been moved up to January.
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is presiding over the Emergency Macroeconomic and Financial Meeting held at the Korea Federation of Banks Building in Jung-gu, Seoul on the 28th. Photo by Hyunmin Kim kimhyun81@
Relaxation of Bank Loan-to-Deposit Ratio Regulations... Choo: "We Will Devise Appropriate Measures When Necessary"
The government will expedite the execution of corporate bond and CP purchase programs by the Korea Development Bank, Industrial Bank of Korea, and Korea Credit Guarantee Fund, as well as CP purchases by securities firms and PF-ABCP programs guaranteed by securities firms and construction companies. The securities firm-guaranteed PF-ABCP purchase program began purchases on the 24th, and the construction company PF-ABCP purchase program will start this week.
For the Korea Development Bank's securities firm-issued CP purchase program, the review period will be shortened from 10 days to 5 days to speed up purchases, and burdens will be reduced by extending maturities when refinancing CP through policy support programs.
Additionally, to secure banks' loan-to-deposit ratio capacity, the government will exclude 11 types of loans funded by government funds from loan calculations in the ratio and will suspend the application of retirement pension borrowing limits until the end of March next year, among other regulatory easing measures.
Deputy Prime Minister Choo emphasized, "We will not let our guard down for a moment, closely monitoring market conditions, and will respond by devising appropriate measures when necessary."
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