Bank fund to start capital injections at end of March: watchdog

SEOUL, March 20 (Yonhap) -- South Korea's financial watchdog said Friday a bank
recapitalization fund will begin injecting capital into local banks at the end of
March in a bid to encourage them expand lending.
South Korea plans to inject an initial 12 trillion won (US$8.5 billion) into
local banks out of the 20 trillion won fund that will be used to buy subordinated
bonds and hybrid debt from lenders.
"The first injection will take place late this month after receiving applications
from local banks next week," the Financial Services Commission (FSC) said in a
statement.
The FSC said a preliminary survey showed the banks want the fund to purchase a
combined 4.3 trillion won worth of subordinated bonds and hybrid debt.
The move comes as banks are still reluctant to lend, especially to smaller,
cash-strapped firms, due to fears that a deepening economic slump and a corporate
overhaul drive would result in more bad loans, compromising their financial
soundness.
A total of 14 banks have applied to tap into the fund and the FSC said the amount
of additional capital infusion will be adjusted in accordance with changes in a
bank's capital adequacy ratio and track record of lending to smaller firms.
In addition to the bank recapitalization fund, South Korea is seeking to launch
another special fund to pump capital event to healthy financial firms as a backup
measure to cushion rising defaults and the impact of the sharp economic downturn.
Currently, the government is allowed to inject public funds into lenders only
when their capital adequacy ratio dips below 8 percent, a threshold for judging a
bank's insolvency.
The average capital adequacy ratio of 18 commercial and state banks came in at
12.19 percent as of the end of December, up 1.33 percentage points from three
months earlier.
sooyeon@yna.co.kr
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