While Japan accounted for the lion’s share of the Asia region’s total 2018 equity lending revenue, South Korea’s was $483 million, a 52% increase on the prior year and nearly double the 28% experienced by the Asia Pacific region as a whole. The country’s equity lending revenues had fallen to $305 million through the end of September.
Its utilization rate—or the percentage of lendable assets on loan—is around 5.4%, down from 7.73% at the end of last year and slightly below Asia’s average of 6.1% as of the end of September, said IHS Markit.
The South Korean economy, which still ranks as an emerging market at index creator MSCI, is expected to grow 2% this year, above the 1.7% real GDP projected for advanced economies, according to an October report from the International Monetary Fund. Its KOSPI 200 stock index is up slightly from a year ago, and domestic players are casting around for fresh opportunities.
In one instance, financial infrastructure providers are laying the pipes for domestic and international asset owners to provide Korean securities as collateral against loans, derivatives and other transactions.
BNY Mellon has been facilitating the use of Korean equities as collateral for a decade—both where receivers take temporary ownership of the assets and in cases where they secure the assets but have no title to them under Korean pledge law. Now the bank is working to pave the way for clients to be able to move Korean government bonds as collateral as well.
Korean government bonds could be a big contributor to growth if they are deemed eligible as “high-quality liquid assets” (HQLA) that financial firms need to hold in order to meet new liquidity regulations enacted in the wake of the global financial crisis. That includes the collateral needed to back complex derivatives.