S. Korea to tap 20 tln won out of distressed loan fund

SEOUL, May 18 (Yonhap) -- South Korea will spend 20 trillion won (US$15.7
billion) to buy bad debts and purchase assets from ailing companies this year as
part of efforts to brace for a corporate revamp drive, the financial watchdog
said Monday.
The money will come from an envisioned 40 trillion won fund which is designed to
help financial firms clean their balance sheets by buying distressed loans and
accelerate corporate restructuring. The fund will operate until the end of 2014.
The Financial Services Commission (FSC) said it plans to use 4.7 trillion won for
purchasing bad property-linked loans extended by financial firms, while about 1
trillion won will be used to chip in to a fund to purchase vessels from
struggling shippers.
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 will 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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