Local banks need to brace for prolonged European debt crisis

South Korea banks should diversify their foreign currency borrowing sources as potential prolongation of the eurozone debt crisis will likely hit the local financial markets, bank heads said Friday. In a monthly meeting between Bank of Korea (BOK) Gov. Kim Choong-soo and nine bank chiefs, participants agreed that if Europe's debt turmoil protracts, the local financial markets are likely to be hugely affected, the central bank said. "There is the need to diversify overseas funding sources like Japan, Southeast Asia and the Middle East," the bank quoted them as saying. The governor said earlier in the day that deleveraging by European banks is inevitable as they are required to bolster their capital quality under a new capital rule. The global financial markets have been undergoing gyrations on concerns that rising borrowing costs in Italy and other eurozone nations are spawning fears about crisis contagions. In a recent report, the BOK warned that if the eurozone debt crisis hit the region's banks, thereby accelerating their deleveraging, and the U.S. economy cools down quickly, foreign capital could leave Korea en masse.