Korea to curb foreign currency loans

The Bank of Korea will restrict banks from giving foreign currency loans to local companies for domestic use from July 1, as part of efforts to protect the local market from big swings in foreign exchange rates.

The plan is part of a set of regulations aimed at reducing Korea’s dependence on short-term foreign borrowings which exposes the market to volatility in times of crisis. 

“We expect to lower short-term foreign debt and reduce local companies’ exposure to currency risks,” the BOK said in the statement. 

New rules allow banks to roll over foreign currency loans to local companies only if those firms can’t raise funds overseas. Foreign currency loans increased $2.19 billion between January and April this year to $22.53 billion, the central bank said.

Foreign exchange analysts say the move is related to China’s recent decision to ease the yuan’s peg against the U.S. dollar which may push the won to appreciate accordingly.

Bank of Korea Governor Kim Choong-soo (second from right) meets financial experts in Seoul on Wednesday. Yonhap News