Geopolitical tension hits banks' foreign borrowing in May

South Korean banks' mid- to long-term overseas borrowing plunged in May as rising tension with North Korea pushed up funding costs, the nation's financial watchdog said Wednesday.

Twelve local banks raised a total of US$520 million in foreign currencies through overseas bond sales and inter-bank borrowing with a maturity of more than one year in May, far less than $1.52 billion the previous month, the Financial Supervisory Service (FSS) said in a statement.

The tumble came as lenders postponed their bond issuance plans as overseas borrowing costs shot up amid growing inter-Korean tension that followed a probe result blaming North Korea for the deadly sinking of a South Korean navy vessel in March.

The credit default swap premium on South Korean five-year bonds, or the cost of insurance against default, averaged 133 basis points last month, compared with 88 basis points in April, the FSS said. One hundred basis points equals 1 percentage point.

The short-term foreign liquidity of local banks, however, continued to improve last month, the FSS noted. The combined overseas borrowing with less than one-year maturity reached 121.4 percent versus their same-maturity debts that come due, from 97.2 percent the previous month.

It was the fourth monthly growth in a row and indicates the lenders raised more foreign funds than they had to refinance maturing debts.