ANNOUNCED AS TEMPORARYNo
Following approval by the Korean National Assembly, that nation's government has extended its guarantee on foreign currency-denominated debts that are acquired or held by domestic banks on or before 31 December 2009.
Certain categories of loan with maturities up to 5 years are eligible for this guarantee. The Ministry of Strategy and Finance, in a press release, made clear that "The eligible creditors for the government guarantee shall include residents as well as non-residents." The total value of the guarantees has been capped at US$100 billion.
The following rationale was given for this initiative: "The extended guarantee scheme reflects that the uncertainties still remain in the international financial market and comes in line with major economies extending their guarantee programs."
It is far from clear that foreign bank subsidaries operating in Korea can benefit from this guarantee. The scheme creates an incentive for residents and non-residents to loan Korean banks money, which in turn confers numerous advantages on the latter.
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