South Korean banks’ short-term overseas borrowing declined in November as Europe‘s debt crisis prompted them to repay foreign debt to brace for the worsening of the turmoil, the financial watchdog said Tuesday.

A total of 16 local banks refinanced 95.9 percent of their maturing debt with fresh foreign borrowing last month, down from 108 percent tallied in October, according to the Financial Supervisory Service.

A bank’s short-term refinancing rate measures the percentage of its new borrowing against foreign currency debts that mature in one year or less.

Twelve local banks‘ long-term refinancing rate, meanwhile, reached 179 percent in November, down from 299.3 percent seen in the previous month, as they tried to secure funds to brace for the spread of the eurozone debt crisis, the FSS said

“Local banks repaid part of their maturing short-term foreign borrowing with long-term funds,” it added.

Bank’s high short-term overseas borrowing has been blamed for intensifying liquidity crunches when financial crises have occured.

At the height of the 2008 global financial crisis, local banks underwent an acute shortage of FX liquidity as foreign investors massively withdrew their money from the Korean markets.

The spread on credit default swaps for South Korea‘s five-year dollar-denominated currency stabilization bonds reached 150 basis points at the end of November, up 13 basis points from the previous month. A basis point is 0.01 percentage point.

The spread on CDSs reflects the cost of hedging credit risks on corporate or sovereign debt.

The FSS said local banks’ FX liquidity conditions largely remained sound, but it plans to strengthen market monitoring as fears about the worsening of the eurozone debt crisis linger. (Yonhap News)