South Korean bad bank loans escalate to $450 billion

South Korean bad bank loans escalate to $450 billion

SEOUL (AFP): South Korean banks' bad loans soared last year
due to heavy exposure to troubled firms leaving banks with total
liabilities of US$450 billion, financial authorities said Monday.

Non-performing loans held by 17 commercial banks doubled to
38.8 trillion won ($31 billion) at the end of September last year
from 19 trillion won ($15.2 billion) the previous year, the
Financial Supervisory Commission (FSC) said.

An FSC report backed analyst warnings that uncertainties in
the banking sector would increase this year due to an economic
slowdown and heavy exposure to weak firms.

Last September, Hanvit Bank, the prime target of government-
proposed mergers, had 8.59 trillion won in non-performing loans,
up sharply from 3.58 trillion won a year earlier.

Chohung Bank was second with 5.46 trillion won, followed by
Korea Exchange Bank with 5.24 trillion won.

During the same period, the average capital adequacy ratio of
South Korean banks fell from 11.35 percent to 8.54 percent.

Korea First Bank, run by a U.S. investment company, saw its
non-performing loans rise from 767 billion won to 1.54 trillion
won. But its capital adequacy ratio was the highest at 13.64
percent, followed by Sinhan's 12.83 percent.

Total liabilities of the 17 banks increased 1.3 percent to 561
trillion won ($450 billion) in September last year, while assets
edged up to 582.6 trillion.

The debt of Kookmin Bank, South Korea's biggest bank, was up
eight percent to 89.3 trillion won, the highest of all. Hanvit
was second at 76.5 trillion won, down 5.5 percent from a year
earlier.

Housing and Commercial Bank (HCB) had 62.3 trillion won in
debt, up from 54.4 trillion won. Chohung Bank's debt increased to
55.9 trillion won from 52.2 trillion won.

Total bad loans in the banking system, including state-owned
institutions, are estimated at 76 trillion won, according to FSC
data.

The government has injected around $100 billion in public
funds into the shaky industry since it received a $58-billion
bailout from the International Monetary Fund (IMF) in late 1997.

The IMF program expired on December 3 after hundreds of weak
financial institutions had been shut down in the three year
program.

But many South Korean financial institutions are still
unhealthy with debts exceeding assets, and new state funds have
been needed.

In January, the government pumped 4.13 trillion won into
Hanvit, Seoulbank, Peace Bank, Kwangju Bank, Cheju Bank and
Kyongnam Bank to boost their capital adequacy ratios.

The government plans to funnel another three trillion won into
the banks later in the year if they implement promised reforms.

Banks laid off 5,178 employees last year to reduce costs. But
they are under pressure to restructure their shaky structure
through mergers.

Debt-stricken banks are under pressure to form a financial
holding company, which has been pushed by the government as the
centerpiece of its financial industry reforms this year.

But afraid of layoffs, bank employees have opposed mergers and
the holding company.

Analysts have said the injection of public funds and mergers
would not be a panacea for the problems faced by the country's
banks, which have extended huge loans to many ailing local firms.