S. Korea eyes 40 tln won corporate restructuring fund

SEOUL, March 13 (Yonhap) -- South Korea's financial watchdog said Friday it will
seek to set up a 40 trillion won (US$26.9 billion) corporate restructuring fund
to buy bad debts from local financial firms.
Local banks are wary of expanding loans to households and smaller firms as the
slowing economy and the credit crunch are increasing the amount of bad loans,
compromising their financial health.
"It is important to swiftly buy and clear bad loans held by financial firms to
preemptively brace for the economic slump," the Financial Services Commission
(FSC) said in a statement.
To this end, the watchdog said in April it plans to submit a bill to allow the
government to sell debt by up to 40 trillion won to finance the fund to be set up
under the Korea Asset Management Corp. (KAMCO).
The fund will be used to buy bad loans from local banks and to purchase assets
from ailing companies, the FSC said, and will operate only until the end of 2014.
Experts say the launch of the fund will be tantamount to reviving the injection
of public funds. The government poured massive amounts of public funds into
financial companies to rescue them from bankruptcy in the wake of the 1997-98
Asian financial crisis.
KAMCO, established in late 1997, is in the process of buying bad debt worth 1.3
trillion won related to property loans extended by local savings banks. The
state-run agency will also clear distressed property loans by domestic banks in
April and May.
Meanwhile, the FSC said it will also seek to establish a special fund which helps
even healthy financial firms recapitalize. The fund will be used to provide
lending and credit guarantees to a wide range of local financial firms, including
credit financing companies.
Separately, South Korea plans to inject an initial 12 trillion won 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.
sooyeon@yna.co.kr
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