Oct. 16 (Bloomberg) -- Emerging-market banks plunged after Standard & Poor's warned that South Korean lenders will struggle to refinance debt, raising pressure on developing nations to bail out their own institutions.

All emerging stock markets fell, led by declines in Russia, South Korea, Peru, Hungary and Brazil. KB Financial Group Inc., which controls South Korea's largest bank, slumped by the daily limit of 15 percent. Uniao de Bancos Brasileiros SA, Brazil's third-biggest non-state bank, had its steepest loss in almost ten years. The MSCI Emerging Market Banks Index of 100 lenders dropped a record 9.2 percent.

``Liquidity concerns are driving investor sentiment today,'' said Bill Rudman, who helps manage about $2 billion of emerging- market stocks at WestLB Mellon Asset Management in London. ``People are selling emerging-market banks also because those shares have held up fairly well compared to other stocks.''

The MSCI Emerging Markets Index fell 7.7 percent to 575.64, the lowest since July 2005, as of 11:57 a.m. New York time. Russia's Micex Index fell 9.1 percent. Brazil's Bovespa plunged as much as 8.4 percent, after sinking 15 percent yesterday.

In South Korea, banks led the biggest slide for stocks since 2001 as the Kospi Index dropped 9.4 percent. The cost to protect Korean government bonds climbed 46 basis points to 375 and credit-default swaps on Woori Bank, the second-biggest lender, jumped 101 basis points to 635, according to CMA Datavision.

S&P said it may cut credit ratings for seven of the country's lenders including Kookmin Bank, the largest, citing a more than 50 percent chance that the global credit squeeze will threaten their foreign-currency funding.

Shrinking Funds

Developing nations' emergency funds are shrinking as export revenue falls and central banks spend their reserves propping up ailing currencies. Russia's international reserves, the world's third largest, fell $32 billion in the past two weeks. Iceland became the first European casualty of the credit crunch to turn to the International Monetary Fund for help after rescuing its three biggest lenders with $61 billion of debt.

``Many central and eastern European countries don't have the financial strength or the technical expertise to bail out banks,'' said Lars Christensen, a senior emerging-markets analyst at Danske Bank A/S in Copenhagen. ``It's like an Iceland look-a- like contest and there are a number of candidates looking very fragile at the moment.''

After Iceland, Kazakhstan has the highest risk of banks imploding, based on credit-default swap prices on Bloomberg for 114 European and Asian banks. The oil-led central Asian economy also ranks as the most vulnerable along with Latvia in a report released by RBC Capital Markets today, based on a study of bank reserves, current account deficits and private borrowing.

Riskiest Countries

The nine countries RBC considers the most at risk are all in eastern Europe or the former Soviet Union. Growth in the region is slowing after a 50 percent drop in oil since July.

OTP Bank Nyrt., Hungary's biggest lender, dropped 9.9 percent, adding to a 15 percent decline yesterday, as the country received European Central Bank help to ease its financial crisis.

Hungary's benchmark BUX share index sank 8.6 percent, after falling 11.9 percent yesterday. Credit-default swaps on Hungary increased 13 basis points to 458, the highest in at least four years, indicating heightened credit risk, according to CMA.

In Brazil, the central bank stepped up efforts to secure cash for small and medium-sized banks strangled by the credit crisis.

Unibanco lost 13 percent to 12.75 reais. Banco Bradesco SA, the country's largest non-state bank, retreated 9.6 percent to 23.60 reais. Banco Itau Holding Financeira SA, the country's second-largest non-state bank, dropped 10 percent to 23.37 reais.

Peru's Lima General Index lost 6.6 percent, while Mexico's Bolsa fell 4.5 percent.

To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.net; Fabio Alves in New York at Falves3@bloomberg.net

Last Updated: October 16, 2008 12:34 EDT