S. Korea to tap 5 tln won from distressed loan fund

SEOUL, May 14 (Yonhap) -- South Korea will spend 5 trillion won (US$4 billion) to
buy bad property-linked loans and idle vessels from ailing shipping companies as
part of efforts to brace for a corporate revamp drive, sources said Thursday.
The money will come from an envisioned 40 trillion won fund established to buy
bad debts from local financial firms and purchase assets from ailing companies.
According to the sources, the Financial Services Commission (FSC) plans to
finalize details on the operation of the special fund soon and will launch it as
early as June with an aim to tap up to 25 trillion won by the end of this year.
Out of the initial 5 trillion won, 1 trillion won will be used to chip in to a
fund to purchase vessels from struggling shippers with the remainder to be spent
on distressed property loans extended by financial firms, they added.
South Korea will create a 4 trillion won fund to buy idle ships from ailing local
shipping lines which have to sell their assets as part of restructuring efforts.
The purchases will likely start as early as June with around 100 ships being
bought at market prices.
The move comes as problem loans are piling up amid the economic slowdown and the
corporate revamp process, compromising local banks' financial soundness.
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 number of such loans turn sour it would undermine
the soundness of the banking sector, dealing a harsh blow to the whole economy.
Property-linked loans by financial firms, excluding savings banks, stood at 69.5
trillion won as of the end of September, 4.7 trillion won or 7 percent of which
were at risk of default, according to the FSC.
sooyeon@yna.co.kr
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