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.