* Levy on foreign debt to take effect in late 2011
* Little impact on banks' profits, but useful tool: analysts
* Steps aimed at reducing impact from sudden capital outflow
(Updates with analysts' comments, effect)
By Yoo Choonsik and Lee Shin-hyung
SEOUL, Dec 16 (Reuters) - South Korea aims to impose a levy on foreign-currency borrowings by banks late next year to curb capital inflows and minimise the possible impact from a sudden outflow of capital, senior finance officials said on Thursday.
They said the government would try to avoid setting the levy so high that it would be a big burden on the industry or shock financial markets, while government sources suggested the levy would be set at less than 0.1 percent of the foreign borrowing.
Analysts said there would be little immediate impact on banks' profits if the levy was set at a low rate but that the move would be a significant additional tool to control capital flows.
"If we correctly understand the system, the levy will be set at a relatively low level and apply only once. If so, the impact on profitability will not be big," said Mok Young-chung, head of research at Royal Bank of Scotland based in Seoul.
"However, it is still meaningful because it means the government will now have a system through which it can control flows and which it can adjust should the need arise."
Vice Finance Minister Yim Jong-yong told Reuters the government aims to unveil details of the levy later this month. Deputy Minister Shin Je-yoon told reporters it would take effect in late 2011 and target foreign-currency borrowings.
They declined to comment on a local media report that details would be announced as early as Sunday, although Yim said it could come at any time this month.
A government source said later it was considering including cross-currency swap positions held by banks in the foreign-currency debt to be levied.
The move comes as loose monetary policy in the advanced economies has driven funds into emerging-market assets and after the leaders of the Group of 20 major economies gave a nod last month to emerging economies in imposing capital controls.
"The aim is neither giving a shock to the markets nor managing the foreign exchange rate at a targeted level," Yim said in interview. "Our goal is to implement a tool to secure soundness of banks."
South Korea has often been hit hard by global credit squeezes because of its heavy exposure to foreign debt, attributed to a big demand for dollar funding to meet forward deals by shipbuilders and to make up for falling domestic deposits.
Foreign-currency borrowings owed by banks in South Korea, including branches of foreign banks, rose to as high as 66 percent of the official foreign reserves in the third quarter of 2008 from less than 25 percent four years before.
A sharp rise in foreign reserves along with the government's effort to curb borrowings have since then helped bring the ratio down to 42 percent in the third quarter of this year, central bank data shows.
South Korea has already imposed ceilings this year on currency derivative trades that banks can hold.
Emerging economies have quickly recovered from the fallout from the 2007-2008 global financial crisis and their fast growth since then has attracted funds from the developed economies still relying on loose monetary policy.
South Korea's economy, the fourth-largest in Asia, is expected to grow by more than 6 percent this year after averting contraction last year and is tapped to post the third-highest growth next year among OECD members. (Additional reporting by Kim Yeonhee; Editing by Kim Coghill)