S. Korea to accelerate corporate overhaul

(ATTN: RECASTS headline, lead; REWRITES with more details and quotes throughout)
SEOUL, April 30 (Yonhap) -- South Korea will speed up a revamp of highly
leveraged companies, including large firms, to head off their potential negative
impact on the slowing economy, the top financial regulator said Thursday.
Local banks have been restructuring ailing companies, but they have come under
fire for being reluctant to carry out the efforts out of fear that weeding out
troubled corporate clients could increase potential losses.
The restructuring drive started amid growing fears that a possible chain reaction
of business failures would undermine the soundness of the banking sector, dealing
a harsh blow to the economy.
"Banks will be urged to step up corporate restructuring as part of efforts to
overcome the current economic hardship," Kim Jong-chang, governor of the
Financial Supervisory Service (FSS), told a press conference. "Bank heads will be
held accountable if the restructuring process is deemed unsatisfactory."
As part of the overhaul drive, the FSS said liquidity-squeezed large business
groups are expected to sign agreements with creditor banks calling for enhancing
their financial health next month.
Since April, local banks have been assessing the financial health of 45 Korean
conglomerates whose debt accounts for more than 0.1 percent of total credit
provided by the banking sector.
If some of the business groups are found to be financially unhealthy, local banks
are expected to sign agreements with them calling for beefing up financial
conditions until the end of May by selling off assets or affiliates.
According to industry sources, a total of 14 business groups fell short of
standards measuring their financial soundness and about 10 conglomerates are
expected to sign such deals with creditor banks.
The FSS said the watchdog plans to push local banks to rigorously restructure
large companies. Creditor banks will review credit risks of 1,422 large firms
which owed more than 50 billion won (US$37.9 million) to financial firms by the
end of June.
Meanwhile, the Finance Ministry said the government plans to provide 9.5 trillion
won in liquidity to healthy shipbuilders and their suppliers by expanding loans
and credit guarantees.
In late March, lenders decided to end support to five smaller ailing companies
and reschedule debts at 15 construction firms and shipbuilders to keep potential
defaults from denting the slowing economy following a similar move in January.
South Korea is beefing up measures to help local banks cushion the impact of the
corporate overhaul drive. The government is seeking to set up a 40 trillion won
fund to buy bad debts from local financial firms and purchase assets from ailing
companies.
It also plans to establish a special fund to help even healthy financial firms
recapitalize as a backup measure to cushion rising defaults and the impact of the
sharp economic downturn.
The South Korean economy grew 0.1 percent in the first quarter from three months
earlier as a sharp decline in exports has moderated, averting a much-feared
recession or two straight quarters of contraction. Asia's fourth-largest economy
shrank 5.1 percent for the fourth quarter of last year.
The Bank of Korea predicted that the local economy will shrink 2.4 percent this
year, the worst performance in more than a decade, stung by falling exports and
weakening domestic demand.
sooyeon@yna.co.kr
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