Onshore players in Korea are eyeing the development of a domestic credit-default swap market in the coming months. "I definitely see this happening in the next six-to-12 months," said a fixed income head at a European house.
Players expect domestic banks to begin offloading some credit exposure, following derivative liberalization that further opened the field earlier this year (DW, 1/14). "Korean banks are very sensitive to credit risk," said a fixed income marketer at a bulge bracket house, who added firms have recently started pitching such transactions. Market participants said local banks are eager to clear their balance sheets to up their Bank for International Settlement ratios following upcoming capital adequacy accords. On the reverse side of such transactions, derivative houses can sell credit protection to investors such as insurers and pension funds, noted officials.
While one-off transactions will likely commence in the coming months, officials noted it will likely be a few years before a liquid market develops. "We need to focus on the larger companies like Samsung before we look at high-yield names," said a credit structurer, also noting that as CDS will be a new concept in the domestic market, it will take time to educate clients to fully develop the market.
