S.Korea state-run banks to provide at least $1.5 bln support to credit union (updated)

Woori Financial

11/07/2023 04:16

(Adds economist comment, CDS price movements)
       SEOUL, July 11 (Reuters) - South Korea's state-run banks
are providing at least two trillion won ($1.54 billion) of
liquidity support to a credit union hit by customers withdrawals
through repurchase agreements, joining commercial banks also
offering financing.
    The Industrial Bank of Korea  024110.KS  and the Korea
Development Bank said on Tuesday they had signed agreements with
MG Community Credit Cooperatives (MGCCC) for 1.5 trillion won
and an amount between 0.5 to 2.0 trillion won, respectively. 
    The move comes amid concerns that the unfolding issues at
MGCCC, which has seen higher customer withdrawals after media
reports on its high debt delinquency rates, could result in a
new credit crunch in local money markets. 
    "MGCCC is not yet in need of all the funds, it seems, but
the government is preparing a back-up tool in advance as it
cannot leave the credit union continuing to sell bonds," said
Kim Sang-man, a credit analyst at Hana Securities.
    South Korea's financial services regulator has also asked
major commercial banks to prepare around 5 trillion won in
financing to support the credit union, Reuters reported on
Monday.
    MGCCC said in a statement last week that its debt
delinquency rate was manageable and it would work with the
Interior Ministry to improve its financial soundness.
        There have not been any indications so far that the
situation at MGCCC is affecting South Korea's major commercial
banks. Credit default swap (CDS) premiums at the lenders were
little changed this month after a spike late last year.
  
        CDS are derivatives that offer insurance against the
risk of a bond issuer not paying their creditors.
  
        The five-year Woori Bank CDS  WOOR5YUSAC=R  was quoted
at 45.33 on Tuesday, according to Refinitiv data, compared with
45.29 at the end of June and a five-year high of 75.17 in early
November. Kookmin Bank's CDS  KOOK5YUSAC=R  was quoted at 51.59,
compared with 75.18 last November.
  
        In November, a missed bond payment by a state-backed
theme park sparked worries about real-estate projects,
triggering a 
    credit crunch
     in domestic money markets. The situation later stabilised
after authorities introduced various liquidity support
programmes.     
  
($1 = 1,297.7400 won)

 (Reporting by Jihoon Lee
Editing by Ed Davies)
 ((jihoon.lee@thomsonreuters.com;))