Financial Authorities Expand Corporate Bond and CP Purchases to 8 Trillion Won... Support for Low-Credit Companies

Joint Financial Market Inspection Meeting Held

On the afternoon of the 12th, the Financial Services Commission held a joint financial market inspection meeting with the Financial Supervisory Service immediately after the regular Financial Services Commission meeting, chaired by Chairman Kim Ju-hyun, at the Government Seoul Office in Jongno-gu, Seoul.

[Asia Economy Reporter Song Hwajeong] Financial authorities are expanding the purchase capacity of corporate bonds and CP from 6 trillion won to 8 trillion won to strengthen support for low-credit companies that may face difficulties in fundraising. The scale of fund supply through policy financial institutions this year will also be increased by more than 10 trillion won compared to the original plan.

On the 12th, the Financial Services Commission held a joint financial market inspection meeting with the Financial Supervisory Service under the chairmanship of the chairman, checking the impact on the financial market and financial companies following the Bank of Korea's Monetary Policy Committee's 50bp (1bp=0.01%) interest rate hike and discussing future response measures.

The financial authorities decided to closely monitor and respond to the foreign exchange market, where volatility has recently increased, in cooperation with related organizations such as the Ministry of Economy and Finance and the Bank of Korea, and actively promote measures to improve supply and demand factors in the foreign exchange market, including expanding the purchase capacity of forward exchange contracts for shipbuilders centered on policy financial institutions.

Regarding the mitigation of stock market volatility, they will promptly proceed with additional purchase commitments to timely reactivate the Securities Market Stabilization Fund, continuously monitor the market, and be fully prepared to implement additional market volatility mitigation measures as needed according to market conditions. They also agreed that institutional investors need to play a responsible role with a mid- to long-term perspective to prevent the spread of market instability.

Furthermore, the financial authorities will strive to resolve corporate funding difficulties caused by interest rate hikes and prevent abrupt concentration of market interest rates. Accordingly, they will expand the purchase capacity of corporate bonds and CP from 6 trillion won to 8 trillion won to strengthen support for low-credit companies that may face fundraising difficulties, and actively respond to recent instability factors in the bond market such as asset-backed commercial paper (ABCP) related to real estate project financing (PF), enhancing efforts to prevent funding shortages for sound business sites.

The financial authorities plan to operate a safety net to mitigate market interest rate volatility by prioritizing the resumption of corporate bond and CP purchases using the pre-established surplus funds (1.6 trillion won) of the Bond Market Stabilization Fund, depending on market conditions. They will also actively prepare liquidity supply facilities related to financial market stabilization in cooperation with financial stability-related organizations.

Measures to alleviate difficulties in vulnerable sectors caused by high inflation, high exchange rates, and high interest rates will also be actively promoted. First, the 125 trillion won + α financial sector livelihood stabilization measures will be implemented without delay, and additional measures will be considered as necessary depending on market conditions. In addition, a 'Comprehensive Financial Support Plan' to alleviate difficulties of small and medium-sized enterprises will be promptly implemented through consultations with related ministries, and the scale of fund supply through policy financial institutions (Korea Development Bank, Industrial Bank of Korea, Korea Credit Guarantee Fund) this year will be increased by more than 10 trillion won compared to the original plan (200 trillion won in 2022).

A Financial Services Commission official said, "Given the high market uncertainty due to external risks, we will continue to monitor risk factors and secure proactive crisis response capacity by expanding financial companies' own loss absorption capabilities."

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