By Kim Jae-kyoung
Staff Reporter

Growing concerns of another financial crisis triggered by LG Card’s cash flow problems have jolted local markets, with both stocks and the currency nosediving.

The main stock index fell to its lowest level in one month on Monday, while the won-dollar exchange rate jumped above 1,200 won for the first time in five months.

The wild market fluctuations indicate that creditors’ provision of 2 trillion won in emergency funds to LG Card has failed to give confidence to investors that the cash-strapped firm can get back to normal in the long-term.

The Korea Composite Stock Price index (KOSPI) fell by 18.25 points to 752.55 as of 3 p.m. from Friday’s close, its lowest level since Oct. 24 when it stood at 748. The key index has lost more than 40 over the past four days from 800.97 on Nov. 18.

The won-dollar exchange rate rose to 1,202.8 per dollar, compared with the previous close of 1,195.2 won. It was at its weakest level in five months since hitting 1,202.5 won on June. 9 and down more than 30 won from 1,171.3 on Nov. 18.

Affected by the won’s meltdown, the won-yen rate jumped to its highest level in 26 months, exposing corporate borrowers in the yen to foreign exchange risks.

The rate stood at 1,103.89 won per 100 yen, the highest level since hitting 1,108.08 on Sept. 27, 2001.

On major Hong Kong financial markets, spreads on five-year foreign exchange stabilization bonds, a barometer for the nation’s creditworthiness, increased to 0.68 percent on Friday from 0.63 percent on Nov. 18.

The spreads on these bonds increase when the nation faces downside risks to its sovereign ratings. Spreads are the issuing costs above the benchmark fixed-income yield of borrowing money.

A number of economists and experts said that without fundamental restructuring in the credit card industry, creditors’ bailout scheme for LG Card, forced by financial regulators, will deal a larger blow to the market in the long run.

``A rescue that prolongs the agony without fundamentally resolving the problems only serves to distort the market,’’ James Rooney, president of Market Force Company, told The Korea Times.

``It also blocks the development of a proper efficient and competitive free market where companies have to use their brains and sound business models to survive,’’ he added.

He stressed that problematic card firms should probably be allowed to fail, and a new owner buy them out of bankruptcy after purging their existing debts and bad loans.


kjk@koreatimes.co.kr