KAMCO to buy distressed property loans from financial firms: watchdog

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SEOUL, March 30 (Yonhap) -- State debt clearer Korea Asset Management Corp.
(KAMCO) plans to buy part of the trillions of won in property loans extended by
local banks and other financial firms in a bid to stem their deteriorating
financial health, the financial watchdog said Monday.

Smaller builders, which borrowed mostly from savings banks to buy property during
the 2005-2006 housing market boom, have been struggling to service their debts.
Concerns have mounted that if a bunch of such loans goes sour, it would undermine
the soundness of the banking sector, dealing a harsh blow to the whole economy.
Property-backed loans by financial firms excluding savings banks stood at 69.5
trillion won (US$50.6 billion) as of the end of September, out of which 4.7
trillion won or 7 percent out of the total had a risk of default, the Financial
Services Commission (FSC) said.
"The regulator plans to make efforts to stem possible expansion of property loan
delinquency," the FSC said.
The outcome came as local banks are set to receive a capital injection through a
20 trillion won bank recapitalization fund, as the slowing economy and a
corporate restructuring revamp are increasing the amount of distressed loans,
hurting their financial health.
The delinquency rate for such loans provided by financial firms except savings
banks came in at an average 3 percent as of the end of last year. The default
rate remains higher than the average delinquency rate of 1.5 percent for banks'
corporate lending, according to the watchdog.
KAMCO, established in late 1997, has purchased bad debt worth 1.7 trillion won
related to property loans extended by local savings banks. The state-run agency
will also clear distressed property loans provided by local banks as early as
April.
"If the move goes as planned, it would help enhance the health of financial firms
and accelerate the drive to restructure ailing builders," the watchdog said.
On Friday, Korean banks and non-bank financial institutions unveiled the second
phase of the corporate overhaul plans, saying that they will end support to five
ailing companies and reschedule debts at 15 builders and shipbuilders to keep
potential defaults from denting the slumping economy.
In mid-January, creditor banks decided to weed out two troubled companies and put
11 builders and three shipbuilders under a bank-initiated debt rescheduling
program.
sooyeon@yna.co.kr
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