Hanbin, Special Collateral Loans with Corporate Bonds to Banks, Securities, and Insurance Companies... About 10 Trillion Won Scale (Update)

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea will lend to banks, securities firms, and insurance companies using high-quality corporate bonds issued by general companies as collateral. This is a safety measure in preparation for the possibility of significantly increased difficulties in fundraising due to the prolonged COVID-19 pandemic.

The Monetary Policy Committee of the Bank of Korea held an extraordinary meeting on the 16th and resolved to establish a new lending system called the 'Financial Stability Special Lending System.'

Accordingly, banks and non-bank financial institutions such as securities firms and insurance companies will be able to borrow for up to six months using high-quality corporate bonds (credit rating AA- or higher) issued by general companies as collateral. Banks will lend based on Article 64 of the Bank of Korea Act, and non-bank financial institutions based on Article 80.

When eligible corporate bonds are provided as collateral, the system will operate as a standby credit facility allowing borrowing from the Bank of Korea at any time.

This system will be operated temporarily for three months within a limit of 10 trillion won, with decisions on extension and increase to be made later depending on financial market conditions and limit exhaustion status.

The Bank of Korea expressed expectations that "by immediately lending at a certain interest rate (182-day Monetary Stabilization Bond rate + 0.85 percentage points, approximately 1.54% as of the 14th) according to the funding needs of non-bank financial institutions such as securities firms using corporate bonds issued by private companies as collateral, it will help stabilize the corporate bond market and improve the funding conditions of financial institutions."

Additionally, it added, "By preparing safety measures in advance to respond to potential emergency situations, it will also be effective in alleviating market anxiety."

This content was produced with the assistance of AI translation services.