Foreign-currency long-term borrowing over $100 million to shift to post-facto reporting

Threshold for corporate won borrowing reporting raised from 1 billion to 50 billion won; implementation targeted by year-end

A currency exchange booth in Myeong-dong, Seoul, on Monday, when the won-dollar rate fell to its lowest level in about two years. [Yonhap]
A currency exchange booth in Myeong-dong, Seoul, on Monday, when the won-dollar rate fell to its lowest level in about two years. [Yonhap]

The government plans to ease foreign exchange regulations on banks' overseas borrowing and corporate won-denominated transactions as part of its push to internationalize the Korean won.

Under the proposed changes, banks' long-term foreign-currency borrowing will shift from advance reporting to post-facto reporting, and the threshold at which companies borrowing won from overseas must report to the Ministry of Economy and Finance will rise from 1 billion won ($749,000) annually to 50 billion won. Domestic branches of foreign securities firms will also be permitted to borrow funds from abroad.

The Ministry of Economy and Finance said Tuesday it will issue a pre-announcement of administrative notice for a revised draft of the Foreign Exchange Transaction Regulation containing these measures. The revision follows up on the "Won Internationalization Roadmap" announced July 19, spelling out deregulation steps aimed at making the won freely tradable overseas.

The first change simplifies the procedure for foreign exchange banks to take out long-term foreign-currency loans. Currently, borrowing above $50 million requires advance reporting to the ministry. Under the new rules, only borrowing above $100 million will require reporting, and that must be done within two business days after the fact. All other borrowing will be exempt from advance reporting. The ministry said the change takes into account existing prudential safeguards already applied to banks, including the foreign-currency liquidity coverage ratio, forward position limits and the macroprudential stability levy.

Regulations on banks borrowing won from non-residents will be eased in a similar fashion. Currently, borrowing above 1 billion won annually requires advance reporting to the ministry, while smaller amounts require advance reporting to the bank itself. The revised draft will shift long-term borrowing above 50 billion won to post-facto reporting to the ministry, and exempt all other borrowing from advance reporting requirements.

Procedures for won-denominated securities issuance by residents and non-residents will also be streamlined. Currently, all issuances regardless of size require advance reporting to the ministry. Going forward, issuances of 50 billion won or less will be allowed to report after the fact, while those above 50 billion won will continue to require advance reporting.

The threshold at which residents such as companies must file advance reports to the ministry when borrowing won from non-residents will rise from more than 1 billion won annually to more than 50 billion won. Transactions below that level will continue to require advance reporting to the bank, as before. The threshold for advance reporting to the Bank of Korea when banks lend won to non-residents will also be raised, from more than 30 billion won to more than 50 billion won.

The revisions also expand support for multinational companies' cash management. Won will be added to the cash pooling system, which allows companies to lend or borrow surplus and shortfall funds within a pre-reported range; currently only foreign currencies are eligible. The maximum limit under the system will double from $50 million to $100 million, inclusive of won.

Domestic branches of foreign securities firms, which have until now been restricted from borrowing foreign currency and won from non-residents, will be permitted to do so on the same terms as domestic corporations — a move intended to help them raise funds smoothly for securities settlement. The investment-only account system will also be improved to allow foreign investors to place won held for domestic securities investment into short-term financial products.

The ministry said it expects the revisions to improve the convenience of foreign exchange transactions by increasing the utility of won-denominated funds and reducing currency risk exposure. It plans to monitor the market impact of the deregulation together with relevant agencies.

The ministry held a meeting Tuesday morning, chaired by the director general of the international finance bureau and attended by the Bank of Korea and financial institutions including banks and securities firms, to gather opinions on the draft revision. The draft will be finalized after the pre-announcement period closes Oct. 26, with implementation targeted before the end of the year.


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