Local banks advised to refrain from withdrawing loans from small firms

SEOUL, Sept. 22 (Yonhap) -- South Korea's top financial regulator urged local banks Monday not to swiftly withdraw their loans from smaller companies that could face liquidity problems amid a slowing economy.

"As local banks are tightening their risk management, borrowing conditions faced
by smaller companies could deteriorate," Jun Kwang-woo, chairman of the Financial
Services Commission (FSC), told a business forum.
"In this situation, if financial institutions withdraw their lending to small
firms unilaterally, they are feared to face shortages of liquidity," he said.
The central bank said in a July report that the credit risks of loans to smaller
companies are likely to increase in the third quarter.
The Bank of Korea report said that the growth of South Korean bank loans to
smaller companies sharply slowed down in August as lenders tightened their grip
on loans to smaller firms.
"So I think if local banks refrain from withdrawing lending to smaller firms
rapidly and help them overcome the current troubles, systemic risks could be
reduced while curbing possible defaults," Jun said.
Meanwhile, Jun downplayed a possibility that bad loans extended to real estate
projects could spark systemic risks in the banking sector.
His remarks came as many smaller builders, which borrowed heavily from savings
banks during the housing market boom, are coming under growing financial burdens
amid the slowing economy, and some of them have already gone out of business.
sooyeon@yna.co.kr
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