SEOUL, Nov. 7 (Xinhua) -- South Korea's financial watchdog chief said Monday that the country has not been facing liquidity risk in its overall financial system amid rising worry about a credit crunch.
Lee Bok-hyun, chief of the Financial Supervisory Service (FSS), told foreign correspondents in Seoul that volatility in South Korea's economy and financial market grew on the back of the expanded external risk factors, driven by rapid interest rate hikes in major economies and higher energy prices.
Despite the recent funding difficulty in short-term money markets, Lee noted that it was not believed to have been liquidity trouble with the overall financial system.
Worry emerged here over the credit crunch following an insurer's postponement to exercise its bond repayment option and a local government-backed developer's failure to repay bonds.
Heungkuk Life Insurance decided last week to delay the redemption of new capital securities worth 500 million U.S. dollars on the first call date of Nov. 9.
The new capital securities, also dubbed perpetual bonds with a call option, refer to a hybrid instrument with no or very long maturity like equity but a fixed coupon rate offered to investors like bond.
If an issuer with the call option to buy back the perpetual bonds fails to exercise the option, investors generally see it as at least signs of a credit crunch.
The market confidence was already aggravated by a rare default of the asset-backed commercial paper (ABCP) from Gangwon Jungdo Development Corp., the developer of the Legoland Korea theme park to east of the country, which was 44 percent owned by the Gangwon provincial government.
The announcement of the default by the state-backed real estate developer with the highest credit rating boosted concerns about other property development projects.
To cool down the credit market meltdown, the government unveiled a liquidity aid package of more than 50 trillion won (35 billion dollars) last month.
The financial watchdog head said the authorities have been selectively offering liquidity to securities firms suffering a temporary financing difficulty, vowing to take pre-emptive measures to prevent the spread of market uncertainties. ■