Banks collaborate with financial authorities for Evergrande risk review

Banks collaborate with financial authorities for Evergrande risk review

A trader reads news about the Evergrande situation on a computer in a dealing room of a branch of Hana Bank in Seoul, Friday. Yonhap

By Lee Kyung-min

The financial authorities and commercial lenders are reviewing spillover risk exposures posed by recent debt default fears at Evergrande, the biggest real estate company in China.

No immediate risks are expected since Korean lenders have not engaged in directing lending to the Chinese firm, but concerns of delinquency linger due to business transactions between Korea’s top five lenders and their counterparts in China.

Also advancing the view are corporate financing businesses operated by corporate entities of Korean lenders in China not involved with the Chinese developer. Whether the Xi Jinping-led populism-oriented heavy regulatory drive will expand into other areas of the financial sector remains to be seen, experts say.

KB Kookmin, Shinhan, Hana and Woori banks and the Financial Supervisory Service (FSS) are closely monitoring any risks, mostly on whether the debt default would lead to them not being able to recover loans.

They maintain that no direct default risks are being posed for the time being, but are taking a closer look at whether unexpected issues could arise with subsidiaries or partner firms of the Chinese developer.

“Korean banks in China are not hugely involved with real estate companies there. The risk from Evergrade was first mentioned a while ago, and many local financial services firms have adjusted their investment and risk management portfolios accordingly,” an industry official said.

The confident outlook is illustrated by Korea’s credit default swap (CDS) premium standing at 17.68 basis points as of Sept. 13, the lowest level since the global financial crisis in 2009. The premium is an indicator that shows the country’s risk of national bankruptcy. The lower the figure, the lower the risk.

This contrasts with that of China whose figure on fears of default risks soared 10.97 basis points, Sept. 20, when Korea’s figure inched up only 1.76 basis points.

Yet, banks and the authorities will have to be on alert over a bout of regulatory risks from China leading to shocks impacting the global financial market, as evidenced by the Communist state’s social control measures widely welcomed by the public over the past few months, according to an industry watcher.

“China has enforced stricter rules on platform operators and online gaming controls on children. The Evergrande woes are the latest result of a series of populist measures likely to continue until China’s 20th Party Congress in 2022. Local financial services firms will need to monitor which policy measure will impact the financial market next,” he said.

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