Bank of Korea Governor Lee Ju-yeol chairs a monetary policy meeting [Yonhap News Photo]
South Korea's central bank held its base rate unchanged at 1.5 percent on Friday amid growing interest in the direction of government actions to overhaul indebted and ailing companies.
A rate freeze has been anticipated, with market watchers interested more in any comment by Bank of Korea (BOK) Governor Lee Ju-yeol who has taken a cautious approach over the suggested mix of monetary and fiscal policy actions to speed up massive corporate restructuring.
Financial officials put their priority on expanding the capital of state-run lenders which need more loan loss reserves in pushing for the restructuring of indebted firms at the risk of straining South Korea's corporate debt market.
Previously BOK officials have said the central bank should stick to its basic role and carry out its duty within the framework of a law.
The central is now under growing pressure to act and support the restructuring of shipping and shipbuilding industries which faces a potential credit crunch. However, Lee said the central bank should play a supportive role to minimize losses, citing loans to state banks as an option instead of the direction injection of liquidity.
"Minimizing losses is the central bank's basic principle," he said, adding the central bank would act while closely watching how corporates restructuring will progress and affect the country's economy and financial markets.
The current level of interest rates is good enough to prop up economic growth, he said, adding the central bank would consider rate cuts only if market volatility gets serious due to corporate restructuring.
Official data showed the total amount of bad loans extended by banks surged to a 15-year high of $26.18 billion at the end of last year, reflecting a business slump in shipbuilding and other troubled industries.
In recent years, bad loans from small companies have been on the decline due to tighter regulations on lending, but about 7.3 trillion won extended by banks to shipbuilders and other distressed major companies went sour in last year alone. The rise in corporate bad loans has sent a danger signal to South Korea's economy.
Aju News Lim Chang-won = cwlim34@ajunews.com
reporter
Park Sae-jin
swatchsjp@ajunews.com
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