Lee Ju-yeol "Considering Loans from Non-Bank Financial Institutions if Financial Conditions Worsen" (Update)

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] On the 2nd, Lee Ju-yeol, Governor of the Bank of Korea, said, "We will consider lending to non-bank financial institutions to stabilize the corporate bond market."

Governor Lee convened an executive meeting in the afternoon and stated, "We need to establish safeguards to prepare for emergency situations." This is interpreted as a plan to supply liquidity to non-financial institutions to facilitate fundraising.

He added, "However, it should not exceed the authority granted to the Bank of Korea by law or provide preferential support to specific companies."

At the executive meeting, Governor Lee reviewed the financial market situation, including trends in commercial papers (CP) and corporate bonds following the activation of the Bond Market Stabilization Fund and the implementation of the full allotment repurchase agreement (RP) purchase system, and discussed future response measures.

The Bank of Korea announced that it conducted an RP purchase auction targeting banks and securities firms in the morning to expand liquidity supply to the market, receiving bids totaling 5.25 trillion won, and decided to supply the entire amount. The maturity is 91 days, and the interest rate was set at 0.78% per annum, 0.03 percentage points higher than the base rate (0.75% per annum).

Meanwhile, Article 80 of the Bank of Korea Act states, "If credit provision by financial institutions is significantly contracted or if there is a high possibility of serious difficulties in fundraising from financial institutions, loans may be extended to profit-making companies engaged in financial business that are not financial institutions, with the approval of four or more Monetary Policy Committee members."

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