April 29, 2014 / 6:52 AM / 4 years ago

South Korea to lend out part of $354 billion foreign reserves

SEOUL, April 29 (Reuters) - South Korea unveiled on Tuesday final details of a plan to lend up to $10 billion of its $350 billion-plus foreign currency reserves to eligible local companies to import production equipment or finance overseas projects.

The plan will provide South Korean companies with foreign currency funds at below commercial rates to invest in domestic production facilities, overseas buildings and plant, the finance ministry said in a statement.

A finance ministry official told Reuters of the plan in December last year, saying terms and other details of the plan would be decided later.

Under the finalised plan, 16 domestic banks and 12 branches of foreign banks operating in the country would begin lending foreign-currency funds to eligible companies from next month for a maturity of up to 10 years at favourable terms.

The lenders would receive the foreign currency funds from the government at lower interest rates than they would otherwise have to pay when borrowing from the markets.

The plan will be effective for one year.

South Korea’s foreign-currency reserves stood at a record $354.54 billion at the end of March. As of the end of February, South Korea had the world’s seventh-largest foreign reserves.

Emerging-market economies including South Korea have boosted foreign-currency reserves as a defence against capital flight in times of economic stress, but the growing costs of keeping the reserves have often been criticised as wasting taxpayers’ money.

A finance ministry official said on Tuesday that the government has no plan to adjust the $10 billion loan ceiling but could look into it based on actual demand. (Reporting by Christine Kim; Editing by Choonsik Yoo and Eric Meijer)

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