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| Logo of bankrupted Silicon Valley Bank (SVB) is seen in this illustration, Monday. Reuters-Yonhap |
By Yi Whan-woo
The bankruptcy of Silicon Valley Bank (SVB) is raising questions over whether commercial banks in Korea are exposed to risks stemming from a sharp U.S. rate hike, which was behind SVB's downfall.
Analysts said Tuesday that the management and business structure of Korean banks is quite different from that of SVB and that such differences enable local banks to withstand the adverse effects of the U.S.' hawkish monetary policy stance.
"We've judged the problems associated with SVB are very likely to be limited to only a few banks in the U.S.," Daeshin Securities analyst Park Hye-jin said.
SVB is specialized in lending to tech startups. And its "specific target audience" in business was pushed into trouble as startups suffered cash burns and a severe decline in venture capital due to the U.S. Federal Reserve hiking its near-zero base rate to a range of 4.5 percent to 4.75 percent in less than a year, according Park.
"And unlike SVB, target customers of the Korean banks are public and corporations in general," the analyst said.
Asking not to be named, a Hana Bank economist said the banks here are heavily inclined to lending loans as opposed to investing in securities as favored by SVB, arguing that such a safe strategy to create wealth makes local lenders here better withstand the impact of the U.S.' rate hikes.
"Lending money and getting it back is a conventional sales method, and it safeguarded the banks here at a time of global economic uncertainties in relation to the Fed's aggressive rate policy," the economist said.
The economist also said that Korean banks are relatively safe from a bank run, a term referring to customer panic and a scramble to withdraw cash from a bank simultaneously.
Investors and depositors rushed to take out a staggering $42 billion in one day, on March 9, amid uncertainty over SVB's finances. Consequently, the bank collapsed a day later.
The Hana Bank economist pointed out that more than 90 percent of Korean bank clients deposit 100 million won ($76,000) or less in their account, as opposed to many SVB clients who deposited $250,000 or more.
"You can see that the risk of a bank run is split in Korea," he said.
Meanwhile, some industry sources said that the possibility of consequences here due to SVB should not be ruled out in Korea.
They noted that the U.S. bank struggled with a liquidity shortage after the value of the long-term bonds that it invested in eroded due to the steep rate hike, as compared to the liquidity crunch suffered by the firms in Korea's debt market over the so-called Legoland crisis in the fall of 2022.
Meanwhile, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said the financial authorities will "strengthen monitoring in real time" to avoid any fallout from SVB's collapse on financial markets here.
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