Top regulator calls on banks to tap `bank fund`

SEOUL, Feb. 15 (Yonhap) -- South Korea's top financial regulator on Sunday urged
heads of local banks to tap a proposed bank recapitalization fund and to increase
lending to smaller firms as part of efforts to stave off the economic slump.
The financial watchdog is seeking to set up a 20 trillion won (US$14.2 billion)
fund in the first quarter to help local banks raise their capital base. The fund
will be used to buy subordinated bonds and hybrid debt from lenders.
"I hope this meeting will pave the way for bringing up solutions to economic
difficulties," Chin Dong-soo, chairman of the Financial Services Commission
(FSC), said in a meeting with nine heads of banks and the chief of the Korea
Federation of Banks.
The meeting comes as local banks have been reluctant to extend loans to
households and smaller firms because the slumping economy and the credit crunch
are increasing the amount of bad debt, hurting their financial health.
South Korean banks saw their fourth-quarter earnings sharply fall or some even
posted a net loss as they put aside more money to cover possible losses to brace
for the economic downturn and subsequent corporate restructuring.
Local banks' lending to small and medium enterprises (SMEs) dipped by 1.8
trillion won in December before increasing by 3.1 trillion won in January,
according to data compiled by the FSC.
Meanwhile, banks have faced conflicting pressure to increase lending to SMEs
while raising falling capital adequacy ratios. The government is calling for
local banks to tap the bank fund, but they are wary of using it due to fears it
may tarnish their credibility.
According to sources, the FSC first plans to create a fund worth about 5 trillion
won this week aimed at helping lenders raise their capital bases.
"The watchdog will announce the details of the plan this week and receive
applications from banks," a high official at the FSC said, asking not to be
named. Market watchers estimated that about six or seven out of 18 lenders may
seek to tap the fund.
Woori Bank, the flagship unit of Woori Finance Holdings Co., said in early
January that it plans to use the fund in a bid to raise about 2 trillion won in
capital.
sooyeon@yna.co.kr
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