Bank of Korea tweaks lending facility to boost liquidity

SEOUL (Reuters) – South Korea’s central bank said on Thursday its monetary policy board decided to reform its standing lending facility, a monetary policy tool for supplying liquidity to banks, strengthening its role as a liquidity backstop.

The board decided to lower lending rates for the loans taken out from the facility to 50 basis points above the base rate, from the current 100 basis points, and accept additional kinds of bonds as collateral with an option to extend maturities by a longer period for loans, the Bank of Korea (BOK) said in a statement.

The decision was made to “prepare for the possibility of large scale deposit withdrawals under the digital banking environment, highlighted in the wake of the U.S. Silicon Valley Bank incident and others,” the BOK said.

For non-bank financial institutions, which are not eligible for the facility under the Bank of Korea Act, the central bank said it would make swift decisions to provide liquidity support in case of any trouble.

Earlier this month, a local credit union was hit by customer withdrawals after media reports of a rise in its non-performing loans, which intensified worries about a liquidity shortage at the union and other financial institutions.

The changes will come into effect on July 31, the central bank said.

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