'Bank fund' injects 4 tln won in capital into local banks

SEOUL, March 31 (Yonhap) -- South Korea's bank recapitalization fund injected
Tuesday a combined 3.96 trillion won (US$2.86 billion) in capital to eight banks
in a bid to encourage them to expand their lending, the financial watchdog said.
South Korea launched a 20 trillion won fund that will be used to buy subordinated
bonds and hybrid debt from lenders in an effort to boost their capital bases.
According to the Financial Services Commission (FSC), the fund bought 3.45
trillion won in hybrid bonds and 503 billion won in subordinated debts from eight
financial firms including top lender Kookmin Bank and leading financial services
firm Woori Finance Holdings Co.
The launch of the fund comes as local banks remain wary of extending loans,
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.
Last week, the Bank of Korea (BOK), the country's central bank, said it will pump
3.3 trillion won in loans to state-run Korea Development Bank (KDB) as part of
its contribution to the fund. The BOK decided to provide up to 10 trillion won to
the fund by extending loans to KDB, which in turn will re-lend the money to the
fund.
In addition to the bank fund, South Korea is seeking to launch another special
fund to inject 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.
sooyeon@yna.co.kr
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