The Korean economy’s dependence on exports and status as a bellwether for global trade leaves it exposed to downside risks that are both domestic and external. An expected US and eurozone recession, rolling Covid-19-linked shutdowns in China, conflict in Europe, the collapsing value of the won, and rising household debt, among other factors, threaten to erode growth prospects.
In that light, South Korea’s financial services regulator has asked central commercial banks to prepare around $4 billion in financing to support a credit cooperative hit by customer withdrawals, two banking sources familiar with the matter said on Monday. An official at the Financial Services Commission said he could not confirm the amount or other details but that it had asked the banks for cooperation in preparing liquidity through repurchase-agreement facilities to aid MG Community Credit Cooperatives (MGCCC).
Banks, including Woori Bank, Shinhan Bank, KB Kookmin Bank, and NongHyup Bank, have already signed repurchase-agreement agreements with MCG, the sources said, asking not to be named because of the matter’s sensitivity. They added that the banks are closely monitoring MGCCC’s liquidity, which is likely to deteriorate further as deposit withdrawals continue.
MCG, whose lending book is estimated at around 10 trillion won ($8 billion), has seen customers withdraw their money to invest in the stock market or other investments, a source at the lender told The Banker last week. The move is a blow to MGCCC’s efforts to create funds to expand its operations, as it has been struggling with low profitability and high borrowing costs.
The source added that MGCCC’s management had hoped to secure more lending volume from overseas remittances, but the current environment makes it challenging to raise capital. The credit union has reportedly begun talks with foreign financial institutions to find alternative funding sources.
Aside from the request to help MGCCC, the bankers’ association also urges the government to beef up the Financial System Stability Council’s budget and its power to carry out liquidity operations. The authority’s existing powers have been limited, and a former policymaker told The Banker.
