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SEOUL (Thomson Financial) - The Bank of Korea said Friday that South Korea will be relatively safe from the fallout in the subprime mortgage market in the US because South Korean financial companies have a limited amount of exposure to these risky loans.

"I see little direct impact from the US subprime woes on the local market," said the director of the central bank's financial markets department, Lee Hung-Mo.

He was speaking as financial markets worldwide encountered more turmoil and central banks in Europe, Australia and Japan injected greater-than-usual liquidity into their banking systems.

On Thursday, French bank BNP Paribas said it is freezing three of its funds that had invested in subprime mortgages in the US, creating fear of a broadening credit crunch that gave the shivers to major stock markets around the world.

Here, the main KOSPI index slid more than three percent in early trading.

Lee said that unlike their international peers, South Korea's conservative financial institutions have insignificant investments in collateralized debt obligations and risky hedge funds.

But he expressed concerns that if the credit squeeze caused an economic slowdown and a slump in private consumption in the US, then it would hurt South Korean exporters.

Economic and monetary policymakers have made efforts to reassure South Korean investors.

The governor of the Bank of Korea, Lee Sung-Tae, said the global economy would overcome the turbulence in the financial markets.

Deputy Prime Minister and Finance Minister Kwon O-Kyu told a news conference: "The subprime loan crisis will not directly affect us. There may be some indirect impact, but it will be pretty limited."

Separately, the Bank of Korea issued a statement Friday on its views about the latest actions by other central banks and its contingency plans.

The latest injection of more cash by the central banks in the US and Europe is "only part of the open market operations" in order to control the short-term market interest rates, which is different from the emergency loans to some specific financial institutions, the BOK said.

The BOK also said that it will also closely monitor the developments of the financial markets and "promptly act" by purchasing repurchase agreements in case of a sharp fluctuation in the overnight inter-bank call rates.

At 11.57 am (0257 GMT), the KOSPI index was down 70.29 points or 3.7 percent at 1,838.39.

(1 US dollar = 930.5 won)

eunkyung.seo@thomson.com

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