(LEAD) 14 banks apply for recapitalization fund

SEOUL, Feb. 27 (Yonhap) -- South Korea's financial watchdog said Friday a total of 14 local banks have applied to tap into a proposed special fund aimed at bolstering their capital bases and encouraging risk-averse lenders to expand loans.

On Wednesday, the Financial Services Commission (FSC) said the government will
pump an initial 12 trillion won (US$7.83 billion) into local banks in March out
of a 20 trillion won bank recapitalization fund that will be used to buy
subordinated bonds and hybrid debt from lenders.
The move comes as banks have become increasingly reluctant to lend, especially to
smaller, cash-strapped firms, due to fears that a deepening economic slump may
result in more bad loans, compromising their financial soundness.
The FSC said that banks applying to tap the fund include top lender Kookmin Bank
and state-owned Woori Bank. Citibank Korea and SC First Bank Korea have not
submitted applications, it added.
The country's top three lenders -- Kookmin, Shinhan, Woori -- applied to draw in
2 trillion won each, the upper limit allowed for each bank. No. 4 lender Hana
Bank will use 1.5 trillion won and Korea Exchange Bank, controlled by Lone Star
Funds, requested 500 billion won, the watchdog added. The 14 banks applied for a
combined 12.3 trillion won.
The amount of each capital injection will be determined by the size of the bank's
assets, and will be adjusted according to changes in its capital adequacy ratio
and track record of lending to smaller firms, the watchdog said.
Since late last year, local banks have been struggling to raise their falling
capital adequacy ratios, a key barometer of financial health, as the slowing
economy and a corporate restructuring drive are increasing the amount of bad
loans.
sooyeon@yna.co.kr
(END)