South Korean banks retain huge bad loans

Published October 4th, 2000 - 02:00 GMT

South Korean financial institutions remain heavily burdened with huge bad loans, despite some improvement between March and June this year, government data showed Wednesday. 

At the end of June, the country's 1,653 financial institutions had 82.5 trillion won ($74 billion) in bad loans, down 8.7 percent from a quarter earlier, the Financial Supervisory Commission (FSC) said. 

 

As a result their average bad loan ratio fell 1.7 percentage points to 13.6 percent, it said. 

Bad loans are defined as those in arrears for more than three months and those to companies seen as unable to service their debts. 

 

The bad loan data followed an FSC report that most major banks were far behind schedule in carrying out reform measures they have pledged in return for billions of dollars of public funds. 

South Korea has already spent 109.6 trillion won of public funds to prop up the financial system since 1997. 

But the government was forced to inject another 50 trillion won into the restructuring of ailing banks. An evaluation of the banks' books will be completed by the end of October. 

 

At the end of June, 17 commercial banks posted 43.31 trillion won in bad loans, down 8.6 percent from the end of March, with their average bad loan ratio down 1.6 percentage points to 12.4 percent. 

Their net bad loans not covered by provisions totaled 31.4 trillion won during the same period, down 12.3 percent from end-March. 

 

The fall in bad loans reflects the sale of bad assets through asset-backed securities, write-offs and the collection of some of the problem loans, the FSC said. 

 

Hanvit Bank held the largest amount of bad loans at 9.27 trillion won, followed by Korea Exchange Bank with 5.74 trillion won, Cho Hung Bank with 5.38 trillion won and Kookmin Bank with 4.49 trillion won. 

Korea First Bank's bad loans stood at 3.74 trillion won, Housing and Commercial Bank at 3.08 trillion won, and Seoulbank at 2.84 trillion won. 

 

Six commercial banks and two provincial banks have received 41 trillion won of public funds -- Seoulbank, Korea First, Chohung, Hanvit, Korea Exchange, Peace, Kwangju and Cheju. 

 

Aside from Seoulbank, which the government plans to sell to foreigners, and Korea First Bank, which has already been sold to Newbridge Capital, the other banks have presented plans to turn themselves around. 

Many of the banks have failed to meet targets they set to strenthen their financial position. 

 

Seoulbank, which has received 8.1 trillion won of public funds, has achieved a 9.16 percent capital adequacy ratio, an indicator of the size of a bank's capital in relation to its assets, which are mainly loans. 

The capital adequacy ratio shows how much of a buffer the bank has to enable it to absorb bad loans. 

 

However, Seoulbank had undertaken to achieve a 10.55 percent BIS capital adequacy ratio by the end of June. 

Chohung, which received 5.5 trillion won, had planned to dispose of 1.9 trillion won of non-performing loans by end-June but managed to sell only 20.4 percent of these. 

 

The FSC said 39 insurance companies held 5.4 trillion won of bad loans, down 1.8 percent from end-March, while 64 brokerage firms held 4.1 trillion won, up 0.1 percent. 

It said 1,527 other marginal non-banks such as merchant banks, leasing firms and mutual savings institutions posted 16.5 trillion won in bad loans, down 1.8 percent from a quarter earlier.— (AFP)  

 

© Agence France Presse 2000  

 

 

© 2000 Mena Report (www.menareport.com)

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