South Korean Financial Authorities Broaden Liquidity Programs To Avert Real Estate Risks

South Korea's financial regulator unveiled a range of steps on Wednesday, including an asset-backed commercial paper scheme, to prevent a credit bottleneck in domestic financial markets due to risks associated with real estate developments.

Among the measures was an extension of the country's Project Financing-Asset Backed Commercial Paper (PF-ABCP) purchase programme, which was established last November in response to a liquidity crisis caused by the state-backed Legoland project's default.

The Financial Services Commission announced in a statement that the 1.8 trillion won ($1.36 billion) initiative will be extended by nine months, until February of next year. So far, a total of 504.5 billion won has been spent, with only 103.2 billion won remaining on the books.

The Commission stated that the measures are being prepared "pre-emptively," with delinquency rates for real estate PF loans expected to continue rising and the total amount of PF-ABCP guarantees remaining at a similar level to late last year, despite recent stabilisation of short-term money markets and securities firms' currently manageable risk levels.

The measures also include inducing securities firms to convert their PF-ABCP guarantees into loans with the same maturities, clearing off faulty bonds quickly to eliminate the issue of maturity mismatch, and improving their financial standings, according to the Commission.