South Korean banks increase foreign currency holdings

South Korean banks sharply increased their foreign currency holdings in 2011 as a precaution against another global financial crisis, the central bank said Monday.

Local lenders foreign currency reserves came to US$ 71.2 billion as of the end of last year, up $ 9.1 billion from $ 62.1 billion in 2010, the Bank of Korea (BOK) said.

Banks’ overseas bond issuance climbed by $ 6.5 billion to $ 55.4 billion, and their long-term foreign currency borrowings rose by $ 2.6 billion to $ 15.8 billion.

The BOK said last year’s increase in banks’ foreign currency holdings marked the third sharpest annual gain after 1996 and 2007.

“The domestic banking sector as a whole did not do too badly but lenders nevertheless moved to secure more foreign currency holdings to deal with any possible fallout from a global economic slowdown,” a central bank source said.

He added that Korean banks had already secured enough foreign liquidity to handle sudden developments that could take place in the first half of 2012 and have plans to acquire more money for the second half if the need arises.

Local lenders also said they have diversified their foreign currency holdings in the past few years by reducing the proportion of U.S. dollars they hold and increasing reserves of other currencies.

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