By Choi Sung-jin
Policy loans extended by the Bank of Korea to state banks to help struggling small- and medium-sized enterprises and "normalize" the corporate debenture market approached 18 trillion won last month, the largest ever.
According to the central bank's statistics, the BOK's loans amounted to 17.98 trillion won ($15.5 billion) in October, recording an increase of 3.8 trillion won from September and hitting the highest level since it began to record related figures in January 1971.
The policy loans in October, which were extended by printing money, were noteworthy because they surpassed even those of February 1999 (15 trillion won) in the aftermath of the Asian financial crisis, and those of November 2009 (13 trillion won) when the impact of the global financial crisis was felt most acutely here, financial market watchers said.
BOK officials say they printed money with utmost caution to help with economic recovery, but concerns are mounting that the central bank, which is not directly controlled by the National Assembly, has set about to support the government's policy using its status as the bank of issue.
The central bank extends soft-term loans with annual interest rates of 0.5-1 percent to commercial banks to help the latter increase lending to smaller firms, and it raised the ceiling for such loans from 15 trillion won to 20 trillion won in April. The BOK also extended 3.4 trillion won to Korea Development Bank as part of its policy to normalize the corporate debt market.
The record-high amount of BOK lending through printing money, which is not subject to the parliament's approval unlike the government's fiscal spending, could result in a fall of currency value and a rise in consumer prices, financial analysts said, noting that a number of unqualified firms seem to have received its support.