[Donmaekgyeonghwa] Despite Large-Scale Liquidity Supply Announcement... Credit Card Companies Say "Low Perceived Impact"

"Bond Purchase Programs Have Low Impact... Need to Actively and Rapidly Implement Measures"

[Asia Economy Reporter Yu Je-hoon] Despite the government's announcement to supply liquidity worth 50 trillion won+α to the capital market through the Bond Market Stabilization Fund and corporate bond/commercial paper (CP) purchase programs, the 'financial paralysis' of specialized credit finance companies such as card companies and capital companies shows little sign of easing. Industry insiders agree that more precise and speedy liquidity supply is needed at this point.

According to the Korea Financial Investment Association on the 2nd, the net issuance amount of other financial bonds in October was recorded at -3.4423 trillion won. Although the redemption amount reached 5.133 trillion won, the issuance amount was only about 1.6907 trillion won. This is about twice the net issuance amount (-1.512 trillion won) in September, when the so-called 'Legoland incident' triggered a tightening in the bond market.

Specialized credit finance companies such as card and capital companies, which do not have their own deposit functions, rely on bond issuance for 60-70% of their required funds. The fact that bond redemptions greatly exceed issuances indicates that these companies are suffering from liquidity shortages. Even if they succeed in new issuances, the interest rates have risen by about 350 basis points (1bp=0.01%) compared to the beginning of the year (from 2.420~6.154% to 5.965~9.821%), so it is not yet a stage to be reassured.

These companies have virtually stopped issuing new loans and are focusing on liquidity management. In the case of a capital company with a credit rating of A-, it sent an official letter to its sales department early last month, stating that it would strengthen the review of loan extensions due to liquidity tightening. The company notified, "Due to the liquidity tightening in the funding market, the difficulty in raising funds is very severe," and "Loans maturing must be repaid unconditionally, and if repayment is inevitably impossible, extensions are not allowed unless four conditions are met."

The company later sent a somewhat softened official letter stating that it would respond selectively to loan extensions considering market conditions, but this symbolically shows the financial paralysis currently experienced by specialized credit finance companies, especially small and medium-sized ones. An industry insider said, "Since refinancing issuance is almost impossible, new corporate and investment finance businesses as well as retail operations have virtually stopped."

Even after the government announced last week that it would operate a 50 trillion won+α bond market stabilization fund and corporate bond/CP purchase programs, the specialized credit finance sector's perception of change is not significant. The reality felt by relatively lower-rated small and medium-sized companies is even more severe. According to bond issuance statistics for seven business days after the liquidity supply announcement on the 23rd, the net issuance amount of other financial bonds remained at -915 billion won.

The reason these small and medium-sized companies do not feel the liquidity supply is that the realized liquidity scale so far is not large, and it is being supplied mainly to high-quality bonds with credit ratings of AA or higher. Moreover, most of this is used to redeem existing bonds, so there is little expectation of a trickle-down effect to the non-investment grade bond market.

Furthermore, major players in the domestic bond market such as pension funds and insurance companies invest only in high-credit-rated corporate and specialized credit bonds according to their own management guidelines, so the actual impact on small and medium-sized sectors is limited. Additionally, individual investors, another major player, have reduced interest in specialized credit bonds as deposit interest rates at commercial banks and mutual finance institutions have risen to 5-6%, making specialized credit bonds relatively riskier.

The industry appeals for the government to act more quickly and aggressively in supplying liquidity. A representative of a small to medium-sized capital company said, "To prevent a situation where a small hoe is used to stop a problem that requires a large rake, it is necessary to inject 5 to 6 trillion won within a short period and expand the purchase targets to lower-rated bonds such as BBB to increase speed and scope," adding, "Also, to bring funds tied up in the real estate market back into the capital market, it is necessary to consider asset purchase programs through Korea Asset Management Corporation and others."

[Image source=Yonhap News]

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