Seoul voices concern over short-term debt in financial sector

South Korea held an emergency meeting with major banks Wednesday to express its concern over growing short-term debt held by financial institutions here, the finance ministry said. The meeting was held earlier in the day at the government's complex building in Gwacheon, south of Seoul, with officials of nine banks, including three foreign institutions, in attendance, according to the Ministry of Strategy and Finance. "We are going to deliver our worries about a rise in short-term borrowings by banks and explain to them about the government's preparation for the planned introduction of a bank levy on Aug. 1," a ministry official said before the meeting started. Attending the meeting were officials from Kookmin Bank, Woori Bank, Shinhan, Hana Bank, the Korea Development Bank and the Export-Import Bank of Korea along with HSBC, JP Morgan Chase Bank and the Bank of Tokyo-Mitsubishi UFJ, the ministry said. The meeting comes as the government is keeping a watchful eye on financial institutions to stem their excessive short-term borrowing. Last month, the government decided to restrict the amount of currency forwards held by foreign bank branches to 200 percent of their equity capital from 250 percent. The ceiling for Korean banks was lowered to 40 percent from 50 percent. The tightened restrictions, which go into effect next month, were made to slow the pace of short-term borrowings and defend the nation's financial system from steep market fluctuations. A surge in short-term debt could leave local banks vulnerable to external shocks at the height of the global financial crisis. In a related move, South Korea plans to impose a levy on banks' non-deposit foreign currency borrowings starting from August in a bid to curb excessive capital flows. South Korea's short-term overseas debt stood at US$146.7 billion as of the end of March, up $11.7 billion from three months earlier, marking the sharpest quarterly growth since the third quarter of 2008, according to the nation's central bank.