South Korean banks' exposure to cash-strapped Greece is not so large, Seoul's financial regulator said Sunday, raising expectations that a default by the struggling European country would have a limited impact on them.
The Financial Supervisory Service (FSS) said that as of the end of March this year, local banks held about US$500 million worth of bonds issued by Greek borrowers, mostly shipping companies.
There has been almost no change in the local banks' exposure since then, the FSS said, without disclosing a bank-by-bank breakdown.
Market watchers said that in light of their current exposure, South Korean banks are unlikely to suffer serious damage even if Greece declares a default.
"Even if Greek shipping companies go belly-up, South Korean banks will be able to recover their loans," said a researcher at Daishin Securities Co.
However, some analysts warned that a Greek default could inflict indirect damage on South Korean banks and other financial institutions, given the fact that they borrow heavily from European lenders.
"If French banks cut back on their lending to emerging markets due to the Greek crisis, South Korean lenders could suffer a credit crunch," said Kim Wi-dae, a researcher at the Korea Center for International Finance.
In addition, the South Korean stock market could suffer collateral damage as money from European countries account for nearly a third of foreign equity investment funds, the researcher added.