Financial Authorities Launch All-Out Effort to Resolve 'Legoland Incident'... 3 Trillion Won Liquidity Supply Starting Today

Starting from the 26th, 3 trillion won supply begins for securities firms facing funding difficulties
Government's 50 trillion won liquidity supply program
Securities firms "Need to expand collateral bond scope"

[Asia Economy Reporter Ji Yeon-jin] Financial authorities have launched a 3 trillion won funding support initiative to ease the credit market liquidity crunch triggered by the default situation at Legoland in Gangwon Province.

According to the Financial Services Commission on the 26th, Korea Securities Finance will disburse 3 trillion won in funds starting today to securities firms experiencing temporary liquidity shortages, such as difficulties securing funds through the short-term money market.

Earlier, on the 23rd, the government decided to implement a 50 trillion won liquidity supply program at an emergency macroeconomic financial meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho. This included a 3 trillion won liquidity support measure for securities firms facing difficulties refinancing real estate project financing (PF) loans and asset-backed commercial paper (ABCP), with Korea Securities Finance prioritizing the use of its own resources. As the real estate market deteriorated recently, securities firms responsible for early-stage development funding faced financing challenges, prompting an increase in support from 1.8 trillion won supplied since July this year.

Korea Securities Finance will provide funds through RP (repurchase agreement) transactions with securities firms and securities-backed loans. Previously, RP transactions allowed only government bonds, monetary stabilization bonds, and bank bonds as collateral, but now high-quality corporate bonds (credit rating AA or higher) are also permitted. Additionally, the range of securities eligible as collateral for securities-backed loans has been expanded to include high-quality corporate bonds (AA or higher), high-quality commercial paper (A1 or higher), deposit-type asset-backed commercial paper (ABCP), and medium-term corporate bonds. Previously, only government bonds, monetary stabilization bonds, bank bonds, and listed stocks could be used as collateral.

Securities firms welcomed this support, expecting it to have a policy effect as funding has become more difficult following the Legoland incident. However, they expressed the view that the collateral bond range should be further expanded. A securities firm official said, "Government bonds or high-grade corporate bonds can be liquidated through other means," adding, "Since securities firms hold many other bonds as well, it would be good to broaden the scope."

In the financial market, it is expected that including commercial paper (CP) rated 'A3 or higher' issued by financial companies in the existing corporate bond and CP purchase programs operated by the Korea Development Bank and Industrial Bank of Korea will help alleviate liquidity shortages of relatively lower-rated small and medium-sized securities firms. Some small and medium-sized securities firms are reportedly relatively heavily exposed to real estate PF-related risks compared to their capital. From the 18th until the end of the year, the outstanding balance of securitized bonds (ABSTB, ABCP) maturing at securities firms amounts to 27 trillion won.

The Financial Supervisory Service also held meetings on the 7th of this month with specialized credit finance companies (credit finance companies) related to real estate PF, savings banks, and small-scale financial companies serving low-income earners, as well as securities firms, to inspect the market, and is focusing on businesses facing funding difficulties. A Financial Supervisory Service official said, "We have already grasped the status of real estate PF in the financial sector," adding, "While the banking sector is relatively safe, we are continuously monitoring sectors such as securities firms and capital companies that have liquidity issues."

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