Banks may need to roll over their short-term loans to South Korean borrowers for longer than anticipated in order to arrange a solution to that country's debt crisis.
Major U.S. banks-headed by Citicorp, J.P. Morgan & Co., and Chase Manhattan Corp.-are scheduled to resume meetings with foreign banks, including Bank of Tokyo-Mitsubishi and Societe Generale, in New York today. Banking sources said the talks will focus on how far banks need to extend the maturities on an estimated $29 billion in short-term loans due by the end of March.
"It's mainly a matter of logistics at this point and whether they'll agree to roll over the debt for another 30 days or another 90 days," one source said.
In December, banks agreed to extend all loans falling due by Jan. 31. It was originally hoped that a longer-term solution-possibly involving a $20 billion debt-for-bonds swap, combined with new funding for South Korea- could be arranged by the end of this month. However, banking sources said Wednesday that this scenario is increasingly unlikely.
As South Korea's debt problems start to be resolved, mounting financial volatility in other Asian countries suggests that banks could face new headaches in the region.
On Wednesday, stock markets and currencies crashed in Indonesia, Thailand, and Malaysia. Publicly traded shares also came under severe pressure in Taiwan and the Philippines, while Hong Kong's stock market plunged.
The Indonesian rupiah lost 6% against the dollar Wednesday, closing at 8,050 to the dollar. The Thai baht slipped 4.2%, and the Philippine peso lost 2.8%. The Taiwan dollar also declined to an 11-year low of 34.4 to the U.S. dollar.
The sudden deterioration in Asian financial markets came despite strenuous recent efforts by the International Monetary Fund to arrange financial rescue packages for several Asian countries, including Indonesia and Thailand. Until this week, both Taiwan and the Philippines remained largely unaffected by the crises in neighboring countries, but they have suffered from currency speculation and a general lack of confidence in Asian economies.
Although U.S. bank credits to these countries are far lower than the nearly $22 billion they have outstanding to South Korean borrowers, the amounts are still significant.
According to the Federal Financial Institutions Examinations Council, U.S. banks have $5.2 billion in credit exposure to Taiwan, $4.7 billion to Indonesia, $3.4 billion to Malaysia, $3.3 billion to the Philippines, and $7 billion to Thailand.