|Financial Services Commission Chairman Choi Jong-ku|
A team of officials from the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) are currently checking the maturity of loans extended to Korean companies by Japanese firms, and are setting up a plan to deal with any refusal to roll over maturing debt or extend new loans
Data shows the outstanding balance of yen-denominated money Korean banks and credit finance firms have borrowed from Japanese lenders and investors was 20.2 trillion won ($17.56 billion) in June.
These comprise of loans or foreign currency bonds that the Korean entities procured from local branches of Japanese banks or banks based in Japan. The funds are used to extend loans to customers here.
Local banks hold 10.6 trillion won and credit finance companies ― credit card issuers and capital financing firms ― 9.5 trillion won. The latter have greater dependency on the funds because they do not accept deposits.
Because these entities are in charge of providing funds for businesses here, expectations are that loans from Japan could become a potential target for Tokyo.
"We are checking the situation involving local financial firms, units of Japanese financial firms here, and units of our financial firms in Japan," an FSS official said.
"While there have been no signs yet of Japan taking action in this sector, we are preparing for all possible scenarios," he said.
But the financial authorities insist that this will not pose a serious threat.
"Korea's finance sector is not as weak as before. Banks here have superior credit ratings that will enable them to get loans from elsewhere if necessary," the official said.
FSC Chairman Choi Jong-ku has repeatedly stated that Korea will not be affected by possible action in the finance sector.
The government is setting aside funds for exporters that can be used if needed.
Yun Chang-hyun, a professor at the University of Seoul, said "The withdrawal of loans may not pose much of a problem, but the government needs to take into account the secondary effects this could trigger."
"Third party banks could pull out their funds if they take Japan's actions as a bad sign," he said, noting foreign banks followed suit when Japan's banks withdrew their funds from Korea during the Asian financial crisis in 1997.
"We cannot simply hold an optimistic view. We need to face the situation squarely."