Bank fund to inject 4.3 tln won into lenders this month

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SEOUL, March 20 (Yonhap) -- South Korea's financial watchdog said Friday a bank
recapitalization fund will begin injecting 4.3 trillion won (US$3.05 billion)
into five local banks at the end of March in a bid to encourage them to expand
their lending.
South Korea plans to launch a 20 trillion won fund that will be used to buy
subordinated bonds and hybrid debt from lenders in an effort to help them raise
capital bases.
"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 five banks include top lender Kookmin Bank, No. 3 player Woori
Bank and No. 4 lender Hana Bank.
The FSC said a preliminary survey showed the banks want the fund to purchase 3.8
trillion won worth of hybrid bonds and 500 billion won in subordinate debts.
The move comes as banks are still reluctant to lend, especially to smaller,
cash-strapped firms, due to fears that the deepening economic slump and a
corporate overhaul drive will result in more bad loans, compromising their
financial soundness.
In late February, a total of 14 banks expressed intents to tap into the fund. The
FSC said the amount of additional capital infusion will be adjusted in accordance
with changes in banks' capital adequacy ratios and their 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 even into 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.
Meanwhile, the FSC said commercial banks plan to launch a so-called "bad bank" by
pooling money in a bid to buy distressed debts in April.
"Local banks will set up a bad bank to clear bad debts out of balance sheets on
their own," Kim Kwang-soo, director-general at the financial services bureau of
the FSC, said in a press conference.
South Korea's state-run debt clearer Korea Asset Management Corp., 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.
According to the FSC, bad loans in the local banking sector reached 14.3 trillion
won as of the end of last year, down from 33.6 trillion won at the end of 1998,
but Korean financial firms' total lending almost tripled to 1,629 trillion won.
sooyeon@yna.co.kr
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