South Korea said on Tuesday its external liabilities have eased, and banking sources in Tokyo said major international banks were set to roll over loans to indebted firms.
Hours earlier, representatives of major banks, meeting in New York, backed a rescue plan to help the country overcome a short-term liquidity squeeze, and the country's parliament passed crucial financial reforms.
Major commercial banks in Japan, the United States and Europe are moving "positively" to help South Korea avoid a short-term liquidity crisis, which is likely to include agreeing to roll over loans to South Korean firms.
The global banks appear to be favourably inclined to do something (to help South Korea)," said one banking source based in Tokyo.
Business daily Nihon Keizai Shimbun .said in its Tuesday edition that the international banks will agree to roll over their loans to South Korean firms, and will convert debts maturing within one year into longer-term debt with maturities of up to three years. The conversion will be made on condition that the South Korean central bank guarantees repayments, the paper said. But sources in Tokyo said nothing has been formally agreed as yet.
A group of top global commercial banks, including Bank of Tokyo-Mitsubishi, said in a joint statement after closed-door meetings in New York on Monday that they were prepared to alleviate a short-term liquidity squeeze in South Korea and to help the country return to global capital markets.
The institutions attending share the view that the Korean economy is strong and that the present situation is due to a liquidity squeeze primarily caused by an excessive reliance on short-term debt," the statement said, without giving exact details.
On Tuesday, the finance ministry said external liabilities as of December 20 fell to $153 billion from $156.9 billion at the end of November. A finance ministry official said the external liabilities included external debt as defined by the World Bank, offshore borrowings of Korean banks and overseas borrowings of overseas branches and subsidiaries of Korean banks. But they exclude borrowings of overseas branches and subsidiaries of Korea enterprises and deposits in overseas branches and subsidiaries of Korean banks.
