S.Korea bank levy rates on forex debt to be below 0.5 pct

SEOUL Jan 3 (Reuters) - South Korea's proposed bank levy on foreign currency debt will not be set at more than 0.5 percent but could be raised for a limited period in an emergency, the government's draft law revision bill showed.

The government last month unveiled a plan to impose the levy on banks' foreign debt, its latest move on capital controls as it tries to mitigate the impact from any sudden reversal in capital flows, but it did not specify the maximum rate.

At the time, it had offered 0.2 percent, 0.1 percent and 0.05 percent as "examples" depending on maturities of foreign borrowings, and said exact rates would be set later. [ID:nTOE6BI00E]

"The levy rates will be set at less than 5/1,000," said the draft revision bill posted on the Finance Ministry's website (www.mosf.go.kr). The revised law draft will be submited to parliament during February.

"But if there is a serious trouble caused by financial market jitters and a sudden capital flows, (the government) can apply a rate of more than 5/1,000 on the amount in excess of the averagenon-deposit foreign currency debt."

A rate above 0.5 percent, once applied, will be in effect only for a limited period of less than six months, according to the revision bill.

Emerging market economies are grappling with a flood of capital as investors look for higher returns, shifting funds away from low interest rates in advanced economies and their fragile economic recovery.

Apart from the proposed bank levy, South Korea has imposed ceilings on currency derivative trades that banks can hold and plans to re-introduce a withholding tax on local bond holdings by foreign investors. (Reporting by Kim Yeonhee; Editing by Yoo Choonsik)