S. Korea to tap 20 tln won out of restructuring fund

(ATTN: RECASTS headline; ADDS more details in paras 2-5,8)
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.
As part of such plans, the Financial Services Commission (FSC) said South Korea
will launch a fund worth 20.2 trillion won this year, out of which 20 trillion
won will be earmarked for the purchase of distressed loans from the financial
sector and assets from unhealthy companies.
"By tapping the fund, the government expects that the corporate revamp move will
be accelerated by swiftly purchasing and clearing out assets from troubled
firms," the FSC said in a statement.
The watchdog added that it will first spend 4.7 trillion won for purchasing bad
property-linked loans extended by financial firms, while about 1 trillion won
will be used to contribute to a fund to purchase vessels from struggling
shippers.
South Korea plans to 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.
Local bank's bad loans totaled 19.3 trillion won as of the end of March, up from
14.7 trillion won three months earlier, according to the Financial Supervisory
Service. The ratio of 18 local lenders' nonperforming loans to total lending
reached 1.47 percent as of end-March, up 0.33 percentage point from the previous
quarter.
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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