Korea also threw open its bond market to foreign investors yesterday. The government pledged an all-out effort to normalise operations at the ones that remain, in an attempt to bolster market morale and prevent the banking crisis from driving more companies into insolvency.
Lim Chang-yuel, the Finance and Economy Minister, said: "We had no other choice because [these] banks have been suffering from a run on deposits exceeding 1 trillion won (pounds 404m) each and every day.''
The five merchant banks, ordered to close until at least Jan. 31 1998, are Nara Banking Corp, Daehan Investment Banking Corp, Shinhan Investment Bank Corp, Hanwha Merchant Bank Corp and Central Banking Corp. Nine merchant banks were suspended last week and told to find ways to rescue themselves by the end of this month or face permanent closure.
A week after the country accepted emergency credit from the International Monetary Fund, Korea's financial turmoil shows no sign of abating. Even some of Korea's biggest companies cannot raise money in the bond market. The country's currency, the won, fell 10 per cent against the dollar for a second day to a record low of 1,566 with no offers to buy the currency. And commercial banks, some fighting for their own survival, remain reluctant to extend credit after a record 15,000 companies filed for bankruptcy this year.
"It's a game of survival. No one is doing business with anybody," said Milton Kim, president of Sangyong Investment & Securities Co, one of Korea's top five brokerages. Some executives are already questioning whether the $60bn (pounds 36bn) lifeline arranged by the IMF for the country's bankrupt financial and industrial companies will be enough.
Even some Koreans, who weeks ago bristled at the idea that the IMF might dictate economic policy, now say the government must accept that some of the country's commercial banks and securities companies will not survive. The Korean government may itself be pushing more companies over the edge as it tries to save every last bank from closure. Yesterday, it went to the aid of Korea First Bank and Seoul Bank, its two most troubled banks, giving them shares in two top blue-chip companies in return for 59 per cent ownership by the state.
The money markets, where banks would normally raise short-term funds, are frozen as rates have reached their limits set by the government. For overnight money, for example, the rate offered by banks has hit 25 per cent. Banks are not lending to companies, who are finding other money- raising methods cut off as well. Samsung Aerospace Industries, Korea's biggest aircraft components manufacturer, postponed a 50bn won bond sale because there were no takers. A 20bn won bond sale by Daewoo Telecom Co has also been put on hold.Reuse content