Oct. 24 (Bloomberg) -- South Korean banks have sufficient funds to withstand a slowing economy, a top financial regulator said during a visit to Singapore to dispel concerns that the north Asian nation is facing a deepening debt crisis.

``Great uncertainties are ahead of us, and in these circumstances, we all know that markets and investors are swayed by unfounded rumors and mischaracterization,'' Rhee ChangYong, vice chairman of the Korea Financial Services Commission, told investors at a lunch meeting in Singapore today. Such rumors are ``absolutely unfounded,'' he said.

South Korea's economy expanded at the slowest pace in four years last quarter, sparking concern the nation is headed for its first recession since requiring an International Monetary Fund bailout 10 years ago. The Kospi stock index slumped 20.5 percent this week, its worst since 1987.

``The situation is different from the 1997 financial crisis,'' Rhee said. ``The government has enough experience and financial and human resources to manage the current international financial turmoil.''

Government Stimulus

The risk of a recession may force the government to provide more stimulus to the economy after it pledged on Oct. 19 to guarantee $100 billion of banks' foreign-currency, provide $30 billion in U.S. dollars to banks and make 8 trillion won ($6 billion) of funds available to the building industry.

Less than half of Korea's total short-term debt of $175.7 billion is owed by Korean banks and companies and the remaining $90.2 billion is relatively risk-free, Rhee said. The nation's total debt is $420 billion, he said.

Korea has $240 billion in foreign-exchange reserves, the world's sixth-largest holdings.

The government's stimulus package, which is expected to be approved by lawmakers next week, was a ``preemptive policy move'' to ensure small companies don't suffer from the credit squeeze and that the economy secures a ``soft-landing,'' he said.

``At this moment, most banks in Korea don't need any recapitalization,'' he said.

The government is encouraging banks to refrain from calling in loans and plans to keep benchmark interest rates low to make sure current liquidity shortages don't lead smaller companies to default, he said.

The Wall Street Journal in a report today named South Korea among nations that may borrow from the IMF. Choi Jong Ku, director-general of the finance ministry's international bureau, said the report is ``definitely untrue'' and the Asian nation doesn't need the Washington-based fund's aid.

The economy grew 0.6 percent in the last quarter, the central bank said in Seoul today. From a year earlier, South Korea's $970 billion economy expanded 3.9 percent, the slowest pace since 2005, and down from 4.8 percent growth in the second quarter, today's central bank report showed.

To contact the reporter in this story: Yoolim Lee in Singapore at yoolim@bloomberg.net

Last Updated: October 24, 2008 08:08 EDT