South Korea asks banks to keep aside $4 bn to support credit union

economictimes.indiatimes.com:

South Korea's financial services regulator has asked major commercial banks to prepare around $4 billion in financing to support a credit cooperative hit by customer withdrawals, two banking sources familiar with the matter said on Monday. An official at the Financial Services Commission said it could not confirm the amount or other details, but it had asked the banks for cooperation in preparing liquidity through repurchase-agreement facilities to aid MG Community Credit Cooperatives (MGCCC).

"(Authorities) are closely monitoring the liquidity of MGCCC," the official said, declining to be named due to the sensitivity of the matter. The commission had no further comment.

Depositors were lining up last week to withdraw funds from a branch of the cooperative after local media reported a rise in non-performing loans tied to real estate projects. The branch, in the city of Namyangju east of Seoul, is due to be closed soon.

South Korea's top financial authorities pledged on Sunday to ensure liquidity at the credit cooperative, which has nearly 1,300 branches, saying in a statement that MGCCC's capital ratio and liquidity far exceeded regulatory ratios and it had sufficient cash-equivalent assets. Sharply rising interest rates and a cooling property market have raised concerns about the potential impact on Asia's fourth-largest economy.

South Korea's five major commercial banks have signed or are in the process of signing repurchase agreements with the credit union, said the sources, who declined to be identified because of the sensitivity of the issue. Repurchase facilities allow for raising cash in exchange for collateral, such as bonds.