International banks extend loans to South Korea to ease crisis

The world's largest banks are poised to extend some of the $100bn (pounds 63bn) of outstanding loans to South Korea, in an attempt to stop the crisis from spiralling across the world's financial markets. As Chris Godsmark in London and Stephen Vines in Hong Kong report, the talks came as Korea agreed to make sweeping financial reforms.

The series of meetings held in the world's big financial centres yesterday fuelled speculation that lenders were preparing to extend loans to South Korea. The discussions follow mounting fears that Korean banks will default on foreign currency loans, which have soared in value after the collapse of the country's currency, the won.

The US central bank, the Federal Reserve, held separate meetings in New York with US and foreign lenders in an attempt to quantify their exposure to Korea. Most loans are thought to be short term, lasting up to 12 months, and analysts suggested they could be rolled over by between a further three months and a year. The extension would provide a breathing space while the International Monetary Fund (IMF) arranged up to $60bn of financial help for South Korea.

Representatives from UK banks held separate meetings in London, led by HSBC, which has assumed a coordinating role. HSBC said it would be rolling over loans maturing in January which would have been extended "in the normal course of business" but a spokeswoman emphasised that the bank had not yet agreed to extend all its Korean loans.

German banks, the most heavily exposed to Korea after Japan's, confirmed they had held talks with the Bundesbank and the German finance ministry. Deutsche Bank, which is leading the German talks, pledged to "safeguard the stability of the international financial system". Meanwhile, some 10 Japanese banks met in Tokyo and were also thought to have agreed to extend credits to Korea.

According to figures issued by the Bank for International Settlements (BIS), outstanding loans by private financial institutions to South Korea at the end of 1996 amounted to about $99.5bn, with those from Japanese firms at $24.3bn.

German and French banks have most to lose if Korean finance houses default on foreign commercial debt. Lenders in the two countries built up much of their exposure from 1993, attracted by spectacular growth rates in the tiger economies in Asia compared with recession in their home markets.

Salomon Brothers, which is advising the Korean authorities on the crisis, estimated that Banque Nationale de Paris (BNP) had leant up to $25bn to the Far East, including Korea, while Deutsche Bank's exposure was $22bn, or 10 per cent of its total lending.

Matthew Czepliewicz, banking analyst with Salomon Brothers in London, said the crisis could hit European banks' profits next year. "They have extremely low bad debt provisions at the moment so it wouldn't take much to upset their earnings growth", but he suggested this left room to cover provisions if Korean businesses were unable to pay their debts.

As bankers gathered to play their role in relieving the Korean crisis, legislators in Seoul finally started to bite the bullet on passing the legislation required to comply with the IMF's tough terms for its bail- out. Last week, the IMF said it would accelerate the handover of the first $10bn of aid if Korea implemented reforms.

Working against a tight timetable they tackled 13 financial reform bills and reached agreement on the most controversial which will bring supervision over the banking, securities and insurance industry under one agency. They also agreed to scrap the ceiling on foreign ownership of South Korean shares. The optimism was reflected in the foreign currency markets yesterday where the Korean won continued to gain ground, ending the day at 1,395 against the US dollar, compared with Friday's close of 1,498. The won had touched a low point of 2,000 just before Christmas.

Korean equity markets were unable to react to the new mood yesterday because the stock market was closed. However, the Tokyo stock market, preoccupied with its own concern about insolvencies, slumped at one stage to its lowest point in two and a half years. The key Nikkei 225 index, however, only fell 0.2 per cent, after recovering from a 300 point fall in early trading.

The big lenders

Loans to South Korea by overseas banks at end of 1996

Japan $24.3bn

Germany $10.0bn

United States $9.4bn

France $8.9bn

United Kingdom $5.4bn

Total loans $99.5bn

Source: Bank for International Settlements

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths
ebooksA special investigation by Andy McSmith
Life and Style
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Amazon misled consumers about subscription fees, the ASA has ruled
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn