SEOUL, Nov 12 (Reuters) - South Korea's central bank is in talks with a state-run housing finance company on funding its purchase of up to 4 trillion won ($2.98 billion) in mortgage loans from local banks, a senior regulator said on Wednesday.
"Korea Housing Finance Corp (KHFC) and the Bank of Korea are in talks over the purchase of the mortgage loans held by local banks," Kim Gwang-soo, director general of the Financial Supervisory Commission, said in a radio interview.
The central bank was asked to finance the mortgage buyout by including bonds issued by KHFC in its repurchase agreement deals, he said.
"The plan needs the approval of monetary policy makers and it could take some time (to reach a final decision)," Kim said.

A central bank spokesman declined to comment on Kim's remarks. The central bank is to hold its next fortnightly monetary policy meeting on Nov 20.
The discussion came after local commercial banks reported their capital adequacy ratio tumbled to 10.79 percent at the end of September, the lowest level in 7-½ years, raising worries about their financial health.

(Reporting by Seo Eun-kyung and Cheon Jong-woo; Editing by Jonathan Hopfner)

((eunkyung.seo@thomsonreuters.com; +82 2 3704 5648; Reuters Messaging;eunkyung.seo.reuters.com@reuters.net)

($1=1342.8 Won) Keywords: FINANCIAL/KOREA MBS

COPYRIGHT

Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.