Hanil to Buy Special Bank Bonds... Lee Ju-yeol "Securities Firms' Loans Under Practical Consultation"

First Time Since the 2008 Financial Crisis
Careful Review of Non-Bank Financial Institution Loans Underway
Lee Ju-yeol Suggests Possibility of Zero Growth This Year

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] The Bank of Korea is purchasing special bank bonds for the first time since the 2008 financial crisis. Special bank bonds have been included in the simple trading target securities, which were previously limited to government bonds and guaranteed bonds. Along with this, the Bank of Korea indicated that South Korea's economic growth rate is bound to plunge this year, suggesting growth in the 0% range. However, the base interest rate was maintained at the current 0.75%. This is interpreted as a decision to observe the effects of measures already implemented, such as last month's 'big cut' and the Korean version of quantitative easing.

Governor Lee Ju-yeol stated at the Monetary Policy Committee on the 9th, after freezing the base interest rate, "This year's growth rate is expected to fall significantly below the February forecast path," adding, "The uncertainty of the growth forecast path is also judged to be very high." He continued, "Consumption has sharply decreased, facility investment recovery has been constrained, construction investment adjustments have continued, and exports have slightly declined," and added, "Employment conditions showed a high increase in the number of employed persons until February, but temporary leave increased as economic activity contracted." Regarding inflation, he said, "Consumer price inflation and core inflation rates are expected to fall significantly below the February forecast (1.0% and 0.7%, respectively) due to the expanded impact of the decline in international oil prices and weakening demand-side pressures."

On the same day, the Bank of Korea decided to include special bank bonds in the simple trading target securities, which were previously limited to government bonds and guaranteed bonds. This is the first time since the 2008 global financial crisis that the Bank of Korea has expanded the scope of simple trading target securities. The Monetary Policy Committee approved an amendment to the open market operation regulations to include ▲small and medium enterprise financial bonds ▲export-import financial bonds ▲and Korea Housing Finance Corporation mortgage-backed securities (MBS) in the simple trading target securities. The Bank of Korea stated, "This measure is expected to facilitate funding for financial institutions and reduce funding costs."

Regarding loans to non-bank financial institutions such as securities firms, specific plans are currently being developed. Therefore, it is possible that the scope of loan targets and collateral securities will be announced once finalized. Governor Lee said, "We are preparing a system to provide loans to securities firms using high-quality corporate bonds as collateral in cooperation with the government," and added, "Details are expected to be specified through consultations."

Governor Lee also said, "As the impact of the novel coronavirus disease (COVID-19) is gradually expanding, we will operate monetary policy in a accommodative manner to mitigate downside risks to the macroeconomy and volatility in financial markets."

◇Terminology Explanation

◆Special Bank Bonds = Bonds issued by banks established under special laws, such as KDB Industrial Bank, IBK Industrial Bank, and Export-Import Bank. These special banks are based on individual establishment laws such as the Korea Development Bank Act.

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