Liquidity Support Poured In to Ease Financial Instability

[Asia Economy Reporter Song Hwajeong] Amid ongoing financial market instability caused by the Legoland incident, the government and financial sector are rolling out various liquidity support measures to stabilize the market.

KB Financial, Shinhan, Woori, Hana, NH, and other five major financial holding companies have agreed to provide a total of 95 trillion KRW in liquidity support by the end of this year in response to the government's request to stabilize the financial market. The chairpersons of the five financial holding companies held a meeting with Financial Services Commission Chairman Kim Ju-hyun on the 1st and expressed this intention. Specifically, the support includes 73 trillion KRW to expand market liquidity supply, 12 trillion KRW participation in bond stabilization funds and securities market stabilization funds, and 10 trillion KRW in funding supply within affiliated companies of the holding groups. Measures include refraining from issuing bank bonds, supplying funds to public enterprises such as Korea Electric Power Corporation (KEPCO), small businesses, SMEs, and large corporations, purchasing special guaranteed bonds, credit finance company bonds, corporate bonds, commercial paper (CP), and asset-backed commercial paper (ABCP), repurchase agreement (RP) purchases, maintaining money market fund (MMF) operation scale, and maintaining credit lines for the secondary financial sector.

Recently, as liquidity concerns have increased among insurance companies with Heungkuk Life and DB Life Insurance delaying early redemption of hybrid capital securities, financial authorities have eased liquidity regulations for insurers. First, the scope of assets recognized as liquid assets under liquidity ratio regulations has been expanded. Previously, only assets maturing within three months were recognized as liquid assets, but with the regulatory easing, assets such as bonds with maturities over three months that can be traded in active markets and can be immediately converted to cash are now included. The liquidity evaluation criteria for insurance companies will also be temporarily relaxed. The financial authorities will raise the evaluation grade of liquidity indicators by one grade until the end of the December insurance company management performance evaluation (RAAS) to enable insurance companies to actively respond to capital calls from bond stabilization funds.

Earlier, the government's "50 trillion KRW + α liquidity support measures" to stabilize the market are also operating without disruption. According to the Financial Services Commission, the bond market stabilization fund has been purchasing primarily CP since last week and will start purchasing credit finance company bonds that are difficult for the market to absorb this week, operating according to market conditions. Korea Securities Finance Corporation has supplied 930 billion KRW to small and medium-sized securities firms through RP and loans so far.

The Industrial Bank of Korea and others have also expanded the scale of their corporate bond and CP purchase programs and began purchasing CP issued by securities firms from the 1st of this month.

The financial investment sector plans to start accepting purchase applications next week through the real estate financing (PF)-ABCP purchase program for the securities industry announced on the 27th of last month. Nine comprehensive financial investment business operators will invest a total of 450 billion KRW to purchase ABCP guaranteed by small and medium-sized securities firms with an A2(-) rating or higher.

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