Domestic Korean banks, including Korea Development Bank and Kookmin Bank, are expecting the regulator to sign off on onshore credit derivatives transactions next year, because the Bank of Korea has started talking to international and domestic derivatives houses about relaxing the rules.
The Bank of Korea is expected to start approving deals on a case-by-case basis early next year and then likely give blanket approval once it gets a clear idea of the types of instruments the banks want to offer. Officials at the BOK in Seoul declined comment.
"We're looking at this for next year," said Man Ho Yoon, general manager of the financial engineering department at the Korea Development Bank in Seoul. He continued, "Many market participants will be keen to invest in won-related credit products." Yoon noted credit products linked to well-known domestic names should prove popular for yield-pickup, given the record low interest rate environment. He sees potential for retail products as well as for local institutional investors. KDB will also likely use credit products to hedge its own credit exposure and as an investment tool.
A senior official at Kookmin Bank said the firm is also studying credit products, but noted that it will take a year or two for a real market to develop, declining to further elaborate.
