S. Korea to take firm steps against ailing banks<\/p>\n
SEOUL (AFP): South Korea's two ailing commercial banks, Korea
\nFirst Bank and Seoulbank, will be auctioned off in February
\nfollowing recapitalization, the finance ministry said Saturday.<\/p>\n
The move heralded major reforms of the country's troubled
\nfinancial sector promised in return for a US$60-billion
\nInternational Monetary Fund (IMF) bailout.<\/p>\n
The future shakeup is likely to engulf insolvent merchant
\nbanks, securities houses as well as insurance companies.<\/p>\n
According to the ministry, the two weakest banks will be told
\nthis month to write down their equity capital and reduce the
\nnumber of equity shares to bring their market value up to par
\nvalue.<\/p>\n
Analysts predicted that old shares of the two banks would be
\nexchanged for new shares at a rate of 2.5 to one.<\/p>\n
As their shares are currently priced at around 2,000 won per
\nshare, down from their par value of 5,000 won, shareholders of
\nthe banks would not suffer any great losses from the exchange,
\nthey said.<\/p>\n
Following the reduction of capital, the government will put in
\nmore money and recapitalize them and sell them off in an open
\nbidding in which foreign investors will be allowed to take part,
\nthe ministry said.<\/p>\n
\"The government originally planned to invest 1.18 trillion won
\n($737 million) in each of the two banks to increase its holdings
\n(of the banks) to more than 50 percent,\" said Kim Jin-Pyo, a
\nsenior official of the ministry said.<\/p>\n
\"However, the government will put in an additional 200-300
\nbillion won for each to meet the international standard for
\ncapital adequacy,\" he said.<\/p>\n
Local newspaper reports said that at least one of the two
\nbanks could be sold to foreigners, citing Chase Manhattan as one
\nof potential buyers.<\/p>\n
Analysts said the financial sector was in for a sweeping
\nshakeup starting from as early as March, noting that only four or
\nfive banks in South Korea were financially sound enough to meet
\ninternational standards.<\/p>\n
Merchant banking will also see most of the 14 suspended
\nmerchant banks closed down or taken over by others starting from
\nthe end of this month under a government plan to revamp the
\nfinancial sector. South Korea has 31 merchant banks. Others which
\nfail to meet certain capital requirements by the end of April
\nwould also be closed down.<\/p>\n
Saturday's announcement came as the government was scurrying
\nto impress an image on foreign investors that Seoul was serious
\nabout financial reforms amid fears that the ongoing foreign
\nexchange crisis could reach a new peak when massive foreign debts
\nare due this month.<\/p>\n
The Wall Street Journal said Friday that international banks
\nwere divided on debt rescheduling terms for South Korea.<\/p>\n
Some favored straightforward loans and others bond issues or
\ninstruments to turn private bank debt into government-backed
\nbonds, the daily said.<\/p>\n
\"There's a broad range of things we should contemplate. As
\nlong as the (recent one-month short-term) rollovers are holding,
\n(the Koreans) have time to come up with a plan,\" an unnamed IMF
\nsource told the daily.<\/p>\n
A JP Morgan proposal for restructuring South Korea's debt
\nsuggests converting short-term debts falling due in 1998 into
\ngovernment-backed securities with maturities of one, five and 10
\nyears, the daily said.<\/p>\n
According to new government statistics confirmed by the IMF,
\nSouth Korea's total external liabilities stood at $159.6 billion
\nat the end of November, including the overseas obligations of
\nSouth Korean banks and their branches.<\/p>\n
Some $92.2 billion of the debts are coming due in less than a
\nyear.<\/p>",
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