Hyundai Motor Securities "Credit Weakness to Persist Until Year-End"

[Asia Economy Reporter Hwang Yoon-joo] A forecast has emerged that the bond market downturn will continue until the end of the year.

Lee Hwa-jin, a researcher at Hyundai Motor Securities, stated in a report on the 28th, "With the continued increase in the base interest rate and liquidity shortages, bond buying demand is expected to decrease."

On the 27th, the Bank of Korea announced at the Non-Monetary Policy Direction Financial Monetary Committee (Non-Monetary Committee) that it would implement measures to stabilize the short-term financial market. The main content is the temporary expansion for three months of eligible collateral securities for loans, collateral securities for settlement of difference, and securities subject to open market operation RP transactions. This will take effect on November 1 and the possibility of extension will be reviewed after three months.

The Bank of Korea decided to conduct RP purchases worth 6 trillion won for existing RP transaction institutions (Korea Securities Finance Corporation and six securities firms). It included bank bonds and nine public corporation bonds in the existing Bank of Korea loan collateral bonds, and added special bank bonds, bank bonds, and nine public institution bonds to the RP transaction target bonds. As a result, domestic banks are estimated to be able to secure an additional 29 trillion won in liquidity.

Researcher Lee said, "Even considering that the Credit Stabilization Fund (Cha-an Fund) has not yet been activated, additional measures have been introduced due to the continued credit caution," adding, "Once this measure and the Cha-an Fund are activated, credit caution is expected to ease."

Korea Securities Finance Corporation also helped extinguish urgent fires by providing liquidity of 3 trillion won to securities firms on the 23rd and including PF ABCP purchase targets. On the 20th, the normalization of the Liquidity Coverage Ratio (LCR) was postponed. The loan-to-deposit ratio for banks was relaxed from 100% to 105%, and for savings banks from 100% to 110% for six months.

Researcher Lee explained, "As corporate bond financing became difficult for companies, bank loans increased significantly, and as banks themselves faced difficulties securing liquidity, competition for deposits and issuance of bank bonds increased," adding, "With the LCR postponement and loan-to-deposit ratio relaxation measures, the Bank of Korea is expected to secure some medium-term lending capacity and reduce upward pressure on loan interest rates."

He continued, "Difficulties in the short-term funding market continue, such as the widening of credit spreads," and pointed out, "In particular, the failure of public and corporate bond auctions reconfirmed the difficulties in the issuance market."

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