(ATTN: UPDATES with results of meeting between Eun and heads of 19 banks in paras 9-10)
SEOUL, March 23 (Yonhap) -- South Korea's financial authorities are expected to announce a set of measures this week to help stabilize financial markets roiled by the spread of the new coronavirus, industry sources said Monday.
The measures include a bond market stabilization fund worth more than 10 trillion won (US$7.94 billion), according to officials.
Last week, Financial Services Commission chief Eun Sung-soo decided to create the bond market stabilization fund during a meeting with the heads of eight banks and other relevant officials.
The South Korean bond market has been suffering a jolt as major economies, including the United States, sharply cut their key rates to minimize the economic fallout from the spread of COVID-19.
The U.S. Federal Reserve slashed its base rate by a whopping 1.5 percentage points in two emergency rate cuts, sending its rates to a target range of 0-0.25 percent.
The Bank of Korea followed suit, slashing its own rate by 0.5 percentage point to 0.75 percent last week in its first emergency rate cut in more than a decade.
The measures could also include a stock market stabilization fund, which could be worth up to 10 trillion won, though its exact size has not been finalized, the officials said.
A key issue is whether financial companies will participate in a proposed stock market stabilization fund due to concerns about potential losses amid high volatility in markets.
On Monday, the heads of 19 banks in South Korea met with Eun and other financial officials and agreed to actively cooperate in creating a bond market stabilization fund and a stock market stabilization fund, according to the Financial Services Commission.
The lenders also said they will make efforts to extend low-rated loans to small businesses, while extending the maturity dates of debts and refraining from retrieving loans.
South Korean financial markets have been suffering extended losses under heavy selling by foreign investors amid the COVID-19 pandemic around the world.
Last week, South Korea and the United States signed a $60 billion bilateral currency swap agreement in a move expected to relieve the liquidity crunch caused by the global spread of the new coronavirus. The currency swap deal led to a sharp rebound of the Korean stock market on Friday.
Still, the benchmark Korea Composite Stock Price Index (KOSPI) lost 83.69 points, or 5.34 percent, to close at 1,482.46 on Monday.
The Financial Services Commission has decided to expand a primary collateralized bond obligations (P-CBOs) scheme to 6.7 trillion won in a move to help ease the credit crunch for low-rated companies.
The P-CBOs scheme could cover airlines, the tourism industry and other industries related to domestic consumption.
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