Bank Bond Issuance 'Soars'... Expected to Increase Further in the Second Half

Four Major Banks Issue 11 Trillion Won This Year
"Approximately 22 Trillion Won Needed to Prepare for LCR Regulation Normalization"

[Asia Economy Reporter Park Sun-mi] The issuance of bank bonds by commercial banks is surging. Although loan demand has increased, the acceleration of withdrawals from savings and time deposits due to low interest rates has led banks to actively issue bonds to secure funds. Although financial authorities relaxed the liquidity coverage ratio (LCR) regulations for banks in response to the COVID-19 situation, it is expected that bond issuance will gain more momentum in the second half of the year in preparation for the possible normalization of regulations in September.

According to the banking sector on the 28th, the total amount of bank bonds issued by the four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?this year reached 8.16 trillion won in the first quarter and 2.85 trillion won in April, totaling 11.01 trillion won. Shinhan Bank issued the most at 3.99 trillion won, followed by Woori (3.25 trillion won), Kookmin (2.02 trillion won), and Hana (1.75 trillion won). Although it is early in the second quarter, the total issuance by the four major banks this year is more than 30% higher than the combined 8.31 trillion won issued in the first and second quarters of last year.

Expanding the scope to the entire banking sector, bank bond issuance has also increased compared to a year ago. According to the Korea Financial Investment Association, the amount of bank bonds issued in the first quarter of this year reached 40.75 trillion won, up from 38.54 trillion won during the same period last year. This is due to the need to secure liquidity for loans and new business funding. There are also forecasts that bond issuance will accelerate further in the second half of the year in preparation for the tightening of LCR regulations for domestic banks.

LCR is an indicator showing the ratio of high-liquidity assets that can be immediately converted to cash to respond to net cash outflows. The LCR standard for banks is 100%, but to encourage active lending by banks during COVID-19, financial authorities lowered it to 85% until March this year and extended the relaxation period once again until September. Since the industry has already seen two extensions, there is a prevailing sentiment to prepare for normalization by September, as further extensions cannot be guaranteed.

LCR of Four Major Banks Slightly Above 90%

As of the end of last year, banks with an LCR below 100% include KB Kookmin, Shinhan, Hana, Woori, Gwangju, Daegu, Jeju, and Industrial Bank. This means most banks need to prepare for the restoration of the LCR to 100%. Among them, the four major commercial banks?Kookmin (93%), Shinhan (90%), Hana (91%), and Woori (91%)?have LCRs slightly above 90%. To restore the LCR to 100%, banks must either reduce net cash outflows or increase high-liquidity assets, making it highly likely that bank bond issuance will accelerate further in the second half of the year.

The bond market estimates that the amount needed for the four major banks to recover an LCR of 100% is about 22 trillion won. Based on the end of last year, the estimated amount of high-liquidity assets required for each bank to simply offset and reach an LCR of 100% ranges from approximately 4.7 trillion to 7 trillion won.

Yoon Won-tae, a bond researcher at SK Securities, said, "Kookmin Bank will need 4.7 trillion won, Shinhan Bank 7.1 trillion won, Woori Bank 4.9 trillion won, and Hana Bank 5.1 trillion won in high-liquidity assets. Assuming the LCR regulation normalizes at the end of September and bonds are raised over three months starting in July, monthly bank bond issuance could increase by about 7 trillion won."

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