Year-End Maturities Worth 47.7 Trillion Won Loom... Credit Markets Tense as Bank Bond 'Supply Bomb' Hits [fn Market Watch]

[Financial News] South Korea's banking sector faces a year-end maturity wall involving bonds and asset-backed securities worth 47.7 trillion won. With bank bond issuance recently concentrated, other credit instruments, including bonds issued by credit-specialized financial companies, have also weakened. Analysts warn that supply-demand pressures could intensify if October corporate deposit outflows coincide with large-scale refinancing.
According to the financial investment industry and KB Securities on the 22nd, bank bond maturities due in November total 26.7 trillion won. In December, asset-backed securities backed by time deposits worth 21 trillion won are scheduled to mature. Excluding the 23.5 trillion won maturity volume recorded in March this year, this is the largest amount seen in the past three years.
The burden of bank bond supply is already being reflected in the credit market. Bank bonds recorded 1.4 trillion won in net issuance last week, while medium-term financial bonds saw 3.4 trillion won in net redemptions. At the same time, AAA-rated bank bonds and industrial finance bonds posted 4.9 trillion won in combined net issuance, concentrating supply within a short period. Some banks raised their issue rates or adjusted maturities.
KB Securities analyst Park Moon-hyun analyzed, "The concentration of bank bond issuance at a particular point in time increased the market's burden of absorbing the supply." Park added, "Given that the widening of spreads was greater for bonds issued by credit-specialized financial companies than for bank bonds and special bonds, the increase in supply of higher-rated bonds appears to have spread weakness to lower-rated sectors through relative-value adjustments."
The key concern is what happens after October. Corporate funds deposited with banks to manage quarter-end financial ratios could begin flowing out again, following a seasonal pattern. Last year, bank deposits increased by 31.9 trillion won in September before declining by 22.9 trillion won in October. If this coincides with the large maturities due in November, banks' demand for refinancing issuance could increase.
Surplus funds held by major semiconductor companies are considered a particularly important variable. KB Securities analyzed that the inflow of such funds supplemented demand during the net issuance of bank bonds from June through August this year, reducing the market burden caused by the increased supply. It also identified "the timing of fund inflows from major semiconductor companies" as a factor to monitor going forward.
Analyst Park said, "If large volumes of bank bonds are issued at high interest rates, investment demand could shift toward bank bonds, relatively crowding out public-sector bonds, corporate bonds and bonds issued by credit-specialized financial companies." He added, "As the issuance burden ahead of the large maturities due in November is priced in, pressure for credit spreads to widen could continue through October and November before gradually stabilizing."
[email protected] Kim Hyun-jung Reporter