ID :
55922
Fri, 04/17/2009 - 08:03
Auther :
Shortlink :
https://www.oananews.org//node/55922
The shortlink copeid
(Yonhap Feature) Lenders prep for bad bank to better clear dud loans
SEOUL, April 17 (Yonhap) -- South Korean banks, saddled with rising bad loans amid a severe economic slump, are moving to create a debt-clearing agency in an effort to keep their distressed assets from being sold at a big discount.
Currently, the state-run Korea Asset Management Corp. (KAMCO) has a near monopoly
on the country's debt-clearing market and has faced criticism for buying problem
assets at fire-sale prices.
Since it began operations in 1997, KAMCO has purchased bad assets worth 111.3
trillion won (US$83.4 billion) from local banks and non-bank financial
institutions for an average 35 percent of their face value.
Disgruntled with KAMCO's pricing policy, top lender Kookmin Bank and other banks
are now discussing the formation of a 3 trillion won bad bank, for which
individual lenders will chip in money. The new entity, to be the nation's first
private debt clearer, is expected to be launched sometime during the second half
of the year.
"Lenders have been forced to accept whatever price KAMCO puts on their bad loans
since it monopolizes the debt-clearing market," said Lee Hyiek-jae, an analyst at
IBK Securities. "That's why they are teaming up to better dispose of such
assets."
The move comes as problem loans are piling up at local banks in the wake of the
U.S.-triggered global financial crisis and a subsequent slump of the South Korean
economy. The loan delinquency rate at local banks reached 1.46 percent as of the
end of March, up from 1.1 percent three months earlier, according to the nation's
financial watchdog.
Although the rate is far lower than the 13 percent a decade ago, lenders are
rushing to brace for a further increase in loans defaulted on by small and
mid-sized companies which are bearing the brunt of the economic crisis, analysts
said.
Alarmed by swelling bad loans, the government has instructed KAMCO to buy up
banks' bad assets. KAMCO will be in charge of managing a 40 trillion won fund and
start to purchase problem loans from early May.
On top of KAMCO's pricing, lenders complain that the method of asset sales forces
them to assume risks, putting them in a disadvantageous position.
KAMCO sells off acquired bad assets to investors and gives the proceeds back to
lenders. But it requires them to pay the difference when it sell the debts below
the purchase price.
"Banks are at a disadvantage due to the state agency's way of trading, which
banks consider riskier than selling bad assets at a fixed price," said Kim
Byung-duck, an economist at the Korea Institute of Finance (KIF).
KAMCO, however, dismisses as "groundless" claims by lenders that their distressed
loans are being sold at low prices. "KAMCO has been even sharing any return from
sales of bad debt with the original lenders," an agency official said, asking not
to be named.
With lenders' discontent growing over KAMCO, market watchers say there is a need
to break KAMCO's monopoly on the nation's debt-clearing market. "The local
bad-loan market needs to be competitive to generate a wider range of buyers,"
said Kim of KIF.
Experts say the envisioned private debt clearer could compete with KAMCO,
enabling banks to sell their toxic assets at better prices. "The envisioned bad
bank is set up so that it can emerge as a strong competitor to KAMCO," Kookmin
Bank CEO Kang Chung-won said earlier this month.
KAMCO was created to dispose of huge debts overdue for three months and over,
following South Korea's foreign exchange crisis. At that time, lenders only
turned to KAMCO to clear their ballooning bad loans.
The crisis taught Korea Inc. the lesson that fast clearing of banks' balance
sheets can help steer the economy out of a slump by giving them room to lend
money to businesses under financial pressure.
Although lenders have agreed to establish their own debt clearer, they remain
divided over the specifics, including its decision-making structure and the
amount of capital each member should shoulder.
Predicting there is a chance negotiations could fall apart, market watchers say
the idea of setting up a private debt-clearing agency could spur KAMCO to better
price distressed bank loans.
"The proposal to establish a private bad bank, even if it does not materialize,
may at least turn up the heat on KAMCO to attach higher price tags on lenders'
bad assets," Lee of IBK Securities said.
pbr@yna.co.kr
(END)
Currently, the state-run Korea Asset Management Corp. (KAMCO) has a near monopoly
on the country's debt-clearing market and has faced criticism for buying problem
assets at fire-sale prices.
Since it began operations in 1997, KAMCO has purchased bad assets worth 111.3
trillion won (US$83.4 billion) from local banks and non-bank financial
institutions for an average 35 percent of their face value.
Disgruntled with KAMCO's pricing policy, top lender Kookmin Bank and other banks
are now discussing the formation of a 3 trillion won bad bank, for which
individual lenders will chip in money. The new entity, to be the nation's first
private debt clearer, is expected to be launched sometime during the second half
of the year.
"Lenders have been forced to accept whatever price KAMCO puts on their bad loans
since it monopolizes the debt-clearing market," said Lee Hyiek-jae, an analyst at
IBK Securities. "That's why they are teaming up to better dispose of such
assets."
The move comes as problem loans are piling up at local banks in the wake of the
U.S.-triggered global financial crisis and a subsequent slump of the South Korean
economy. The loan delinquency rate at local banks reached 1.46 percent as of the
end of March, up from 1.1 percent three months earlier, according to the nation's
financial watchdog.
Although the rate is far lower than the 13 percent a decade ago, lenders are
rushing to brace for a further increase in loans defaulted on by small and
mid-sized companies which are bearing the brunt of the economic crisis, analysts
said.
Alarmed by swelling bad loans, the government has instructed KAMCO to buy up
banks' bad assets. KAMCO will be in charge of managing a 40 trillion won fund and
start to purchase problem loans from early May.
On top of KAMCO's pricing, lenders complain that the method of asset sales forces
them to assume risks, putting them in a disadvantageous position.
KAMCO sells off acquired bad assets to investors and gives the proceeds back to
lenders. But it requires them to pay the difference when it sell the debts below
the purchase price.
"Banks are at a disadvantage due to the state agency's way of trading, which
banks consider riskier than selling bad assets at a fixed price," said Kim
Byung-duck, an economist at the Korea Institute of Finance (KIF).
KAMCO, however, dismisses as "groundless" claims by lenders that their distressed
loans are being sold at low prices. "KAMCO has been even sharing any return from
sales of bad debt with the original lenders," an agency official said, asking not
to be named.
With lenders' discontent growing over KAMCO, market watchers say there is a need
to break KAMCO's monopoly on the nation's debt-clearing market. "The local
bad-loan market needs to be competitive to generate a wider range of buyers,"
said Kim of KIF.
Experts say the envisioned private debt clearer could compete with KAMCO,
enabling banks to sell their toxic assets at better prices. "The envisioned bad
bank is set up so that it can emerge as a strong competitor to KAMCO," Kookmin
Bank CEO Kang Chung-won said earlier this month.
KAMCO was created to dispose of huge debts overdue for three months and over,
following South Korea's foreign exchange crisis. At that time, lenders only
turned to KAMCO to clear their ballooning bad loans.
The crisis taught Korea Inc. the lesson that fast clearing of banks' balance
sheets can help steer the economy out of a slump by giving them room to lend
money to businesses under financial pressure.
Although lenders have agreed to establish their own debt clearer, they remain
divided over the specifics, including its decision-making structure and the
amount of capital each member should shoulder.
Predicting there is a chance negotiations could fall apart, market watchers say
the idea of setting up a private debt-clearing agency could spur KAMCO to better
price distressed bank loans.
"The proposal to establish a private bad bank, even if it does not materialize,
may at least turn up the heat on KAMCO to attach higher price tags on lenders'
bad assets," Lee of IBK Securities said.
pbr@yna.co.kr
(END)
