Banks wary of lending to smaller firms amid slumping restructuring process

SEOUL, Feb. 1 (Yonhap) -- Despite the central bank's aggressive efforts to ease
its monetary policy, South Korea's major banks still remain wary of providing
liquidity to cash-strapped companies for fear that their loans could go sour amid
worsening economic conditions, market observers said Sunday.
Since October, the central bank has cut the policy rate by 2.75 percentage points
to a record low of 2.5 percent, while injecting around 22 trillion won (US$15.9
billion) in liquidity since September, when the global financial turmoil started.
Industrial lending for cash-strapped companies, however, remained almost stagnant.
According to industry data by the nation's six major banks, including Kookmin
Bank, Shinhan Bank, and Hana Bank, the outstanding loans provided to small- and
medium-sized companies stood at a combined 308.24 trillion won as of the end of
last month, up a mere 0.7 percent from a month earlier.
The anemic growth is attributed to the still-high credit risks that banks should
shoulder amid the delaying process of corporate restructuring for many companies.
Experts say that banks are withholding loans to prevent the number of bad loans
from increasing further.
In mid-January, banks decided to end support to two ailing firms and reschedule
debts at 11 builders and three shipbuilders as part of a corporate restructuring
drive, but experts say the efforts fell far short of market expectations.
Though the second round of restructuring will be launched soon on 98 shipbuilders
and construction firms, those companies are so small that its impact on the
market is not expected to be significant.
Industry sources say that banks, which are focused on minimizing bad loans, are
first to blame for the slowed restructuring pace. But they also blamed the
government and financial watchdogs, calling on them to encourage banks to take
more active action with diverse incentives.
kokobj@yna.co.kr
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