S.Korean exports, weaker bank capital heighten economic worries
Reuters - Wednesday, November 12
By Rhee So-eui and Cheon Jong-woo
SEOUL, Nov 11 - South Korean exports dropped sharply at the start of November, setting them on course for their worst monthly performance in more than seven years, while new figures underscored the weakness of the country's banks in the face of the global financial crisis.
The data released on Tuesday comes a day after Fitch Ratings cut its outlook on Asia's fourth-largest economy to negative, citing its liquidity-squeezed banks as a concern.
South Korean banks' capital strength hit its lowest level in 7-½ years and exports, which have long driven the economy, fell 26 percent from a year earlier in the first 10 days of November. If confirmed for the whole month, this make for the biggest drop since at least July 2001, when exports fell 21 percent.
Shares and the won <KRW=>, which have fallen sharply in recent months, slipped further on investor concerns over weakening export markets and slower growth at home.
"The economy is likely to deteriorate further until the first quarter of the next year as both domestic demand and exports are slowing at the same time," said Kim Jae-eun, an economist at Hana Daetoo Securities.
"To prevent that, we need further interest rate cuts and more fiscal spending."
The central bank has already cut interest rates by a total of 1.25 percentage points in the past month and many analysts predict more to come to help shore up an economy that has looked especially exposed to the impact of the global crisis.
The capital ratio -- a key measure of balance sheet strength -- of local banks fell to 10.79 percent at the end of September, the lowest since end-March, 2001, pressed down by investment losses as a result of the global turmoil and an increase in risky assets, the financial regulator said.
Separate data showed the ratio of bad debt to total loans at domestic banks rose to 0.81 percent at end-September from 0.70 percent at end-June.
The data bolstered investor concerns over funding distress and rising bad debts, pulling down bank shares, with KB Financial Group <105560.KS> ending down 2.68 percent.
Adding to the gloom, a local construction research institute predicted that housing prices in 2009 are expected to post their first sharp fall since the Asian financial crisis a decade ago.
The figures came along with mounting evidence of a weakening economy in China, South Korea's biggest export market, while feeble data from Australia and Britain added to fears of a prolonged global recession.
On Monday, Circuit City Stores <CC.N>, the No. 2 U.S. consumer electronics retailer, filed for bankruptcy just weeks before the start of the holiday shopping season in South Korea's second-largest export market.
The news cut into shares of appliance and mobile phone maker LG Electronics, which dropped 6.99 percent, while LG Display <034220.KS>, a maker of flat screens for TVs and computers, fell 6.46 percent. Hynix Semiconductor <000660.KS>, which makes chips used in computers and consumer electronics, dropped 8.52 percent.
"Worries about exporting conditions worsened today, sending tech shares lower after the news of Circuit City's bankruptcy filing. It indicates the gravity of U.S. economic slowdown," said Kim June-kie, a senior market analyst at SK Securities.
The won, which earlier fell as much as 2.4 percent on the economic concerns, was quoted at 1,329.8/0.1 per dollar as of 0600 GMT, compared with Monday's domestic close of 1,326.3. (Additional Reporting by Park Jung-youn; Editing by Jonathan Thatcher & Jan Dahinten)
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