Lingering financial risks threat S. Korean economy

By Nam Kwang-sik
SEOUL, May 25 (Yonhap) -- The South Korean economy is still confronted with
lingering financial risks despite budding signs of a recovery, a business body
said Monday, urging the government to address them swiftly.

The Korea Chamber of Commerce and Industry (KCCI) said in a report that the
country's financial industry has been threatened by five risks -- a rise in bad
debts, falling net interest margins, growing market instability, a slumping
housing market and a reduction in the middle income households.
"Corporate and household defaults on bank loans may continue to rise for a while
unless the real economy improves," the KCCI said.
The default rate has climbed steadily from 0.74 percent in 2007, to 1.08 percent
in 2008 and 1.46 percent in March this year, with the non-performing loans
reaching 7.7 trillion won (US$6.2 billion), 14.7 trillion won in 2008 and 19.3
trillion in March this year, it said.
Local banks' net interest margins, a key barometer of profitability, have been
squeezed by low interest rates, while financial markets remain unstable due to
excess liquidity, the KCCI said.
The Bank of Korea (BOK) left its key interest rate unchanged at a record low of 2
percent on May 12.
The prolonged downturn in the housing market and a rise in unemployment are also
worrying the local financial industry, it said.
The business body called on the government to expand the capital base of the
local financial institutions and help local commercial banks establish a bad bank
aimed at addressing the problem of growing bad loans as soon as possible.
Local commercial banks are moving to set up a bad bank to be capitalized with
around two trillion won in September, which will be charged with purchasing dud
loans from lenders and disposing of them.
ksnam@yna.co.kr
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