ID :
30611
Mon, 11/17/2008 - 10:15
Auther :

S. Korea to restructure nonviable builders, savings banks

SEOUL, Nov. 16 (Yonhap) -- South Korea plans to restructure nonviable local
construction companies and savings banks in a bid to prevent the possible
collapse of such firms from weighing on the real economy, government officials
said Sunday.

Some smaller builders, which borrowed mostly from savings banks during the
housing market boom, are suffering from financial burdens caused by the slowing
economy and a huge number of unsold homes, with some going out of business.
The government and local banks have expressed concern that an indiscriminate
supply of liquidity to all firms across the two sectors would not be effective,
raising expectations that weeding out nonviable builders and savings banks might
be inevitable.
Local banks plan to advise builders suffering from a temporary cash shortage
among the country's 100 builders to join a liquidity support program, with
applications for the scheme open until Tuesday. If the construction firm agrees
to receive the liquidity and attendant conditions, its creditor bank will roll
over debt by one year. The process is also intended to weed out nonviable firms.
"Once unhealthy builders are selected (for restructuring), the government and
banks will be able to provide liquidity to viable firms in earnest," a government
official said. "Such builders who apply for the liquidity program will then
receive financial support."
South Korean savings banks are also expected to face restructuring amid growing
concerns that their lending for real estate projects might go sour.
As of the end of June, real estate project financing loans by savings banks
amounted to an outstanding 12.2 trillion won (US$8.73 billion), accounting for a
fourth of their total lending. The default rate for such loans came in at 14.3
percent as of the end of June, up from 11.4 percent at the end of last year,
according to the financial watchdog.
Financial difficulties facing the local construction sector are likely to take a
toll on savings banks, some of which have already seen worsening asset quality
amid the slowing economy, experts say.
The government said it is considering buying bad loans related to project
financing of savings banks while it will also urge them to push for self-help
measures like increasing capital.
Such financial sector restructuring sparks painful memories for South Koreans of
the 1997-98 Asian financial crisis when a series of collapses of local banks and
ensuing government-led restructuring led to massive lay-offs.
The South Korean economy grew 0.6 percent on-quarter in the third quarter, the
slowest growth in four years, due to faltering domestic demand and lagging export
growth.
sooyeon@yna.co.kr
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