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(LEAD) Financial regulator to review contingency plans over N. Korea's provocation

All Headlines 16:36 September 09, 2016

(ATTN: UPDATES with FSS's statement in last 8 paras)

SEOUL, Sept. 9 (Yonhap) -- South Korea's financial authorities on Friday said they will review contingency plans in place for possible market turmoil caused by North Korea's provocation.

The Financial Services Commission (FSC) convened an emergency meeting of senior officials to discuss the aftermath of the communist neighbor's fifth nuclear test earlier in the day.

Government officials related to the financial market meet in Seoul on Sept. 9, 2016, to discuss countermeasures to possible adverse effects from North Korea's nuclear test. (Courtesy of the Ministry of Strategy and Finance)

In the session, presided over by the FSC's chief Yim Jong-yong, the commission concluded that the local financial market has suffered no big impact from Pyongyang's latest provocation.

"Big changes in the stock prices and foreign exchange rate today rather appear more affected by a sense of disappointment over the European Central Bank (ECB)'s freeze of interest rates and profit-taking," it said.

The agency pointed out that Seoul's financial market has traditionally been little affected by the North's provocations, or has recovered quickly when affected.

"But now that the intensity of North Korea's threats of provocation is constantly getting higher and the situations are still uncertain, there is a possibility that the impact on the financial market won't be short-lived," it added. "We will closely monitor related trends. We will also review existing contingency plans in case of a shift in the situation."

In a separate statement, the financial supervisory arm of the government also said it will step up monitoring the market in "emergency response" mode to cope with "potential elements for instability" stemming from Pyongyang's nuclear experiment.

The Financial Supervisory Service (FSS) echoed the FSC's evaluation. meanwhile, that the domestic financial market looks "stable" in general, although the benchmark Korea Composite Stock Price Index (KOSPI) closed the day 1.25 percent lower.

"The KOSPI opened 1.2 percent lower" on Friday in advance of the news of North Korea's nuclear test, it said, adding the decline was attributable to the results of the ECB's meeting that produced no additional stimulus measures.

The yield on three-year Treasurys also rose 3 basis points but it's from a sharp increase in the yield on U.S. Treasurys rather than the North Korean nuclear issue, according to the FSS.

It voiced optimism about South Korea's capability to handle an external impact at least for a few months if it's not worse than the 2008-09 financial crisis.

The foreign exchange liquidity rate of local banks stood at 108.6 percent as of end-August, far higher than the government-set guideline of 85 percent.

A recent stress test of domestic banks by authorities also showed that they can endure the previous financial crisis-level situation for three months or longer, the FSS said.

lcd@yna.co.kr
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