(News Focus) Banks rushing to raise capital amid more bad loans

SEOUL, Nov. 28 (Yonhap) -- South Korea's major banks are selling stocks and bonds
in a hastened effort to firm up their fundamentals as they anticipate more assets
will turn sour down the road, industry sources said Friday.

Local lenders have been hard hit by the financial turmoil and the ensuing
economic slowdown, as they rely heavily on short-term credit. The spiraling
economy has increased expectations that extended loans may default.
Kookmin Bank, the country's leading lender, and other Korean rivals already
reported higher provisions against bad loans in the third quarter as the nation
faced its deepest financial crisis in a decade.
The average capital adequacy ratio at 18 commercial and state banks, measured by
the Bank for International Settlements (BIS), stood at 10.79 percent as of the
end of September, a drastic drop from 12.31 percent at the end of last year.
The ratio, a key barometer of financial soundness, measures the percentage of a
bank's capital to its risk-weighted credit. The Swiss-based BIS advises lenders
to maintain a ratio of 8 percent or higher, but the ratio of 11 percent or more
is usually regarded as financially sound in the market.
"The problem is that it is highly likely that local lenders will report more bad
assets down the road as the economic situation deteriorates," said Kim Dong-hwan,
a researcher at the Korea Institute of Finance. "Their capital adequacy ratios
may drop further in line with a deepening economic slump."
KB Financial Group Inc., created in September as a holding company for Kookmin
and other units, said this week it may swap treasury shares with domestic or
foreign firms in order to boost its main banking unit's capital adequacy ratio.
Kookmin Bank also recently sold 1.5 trillion won (US$1.03 billion) worth of
subordinated bonds. When a lender sells such debts, proceeds from the sale are
recorded as capital, raising its adequacy ratio.
Woori Finance Holdings Co., which controls the country's No. 2 lender, is
planning to sell 1 trillion won worth of debts, proceeds from which will be used
to buy preferred shares of Woori Bank.
Hana Bank, the nation's No. 4 lender, also sold more than 500 billion won worth
of subordinated debts, and is considering raising further capital by selling
shares or bonds, according to sources.
The government is taking steps to help local lenders buttress their capital base,
although officials have ruled out the possibility of injecting public funds.
The Bank of Korea, the country's central bank, is planning to buy subordinated
bonds issued by banks. Some state-owned lenders, such as Korea Development Bank,
are also set to buy preferred shares of local banks, sources said.
Jun Kwang-woo, chairman of the Financial Services Commission, said earlier in the
day that South Korean banks do not need public funds because they are making
efforts to control risks associated with mortgages and loans to small companies.
"Local banks should first double their efforts to boost their capital base," Jun
told reporters. "And then they would be able to extend loans, and the market
functions would work."
Meanwhile, the government announced this week it was considering buying bad debts
from banks to help them clean up their balance sheets and start lending again to
businesses, which are in danger of having their funding choked.
The state-run debt restructuring agency, Korea Asset Management Corp, said on
Thursday it was considering boosting its own capital to buy bad loans from banks
next year. The state-run Korea Housing Finance Corp. also said it is considering
buying more mortgages from local lenders.
"If the government is planning to help local banks raise their financial
soundness, it should do that now," said Cho Byung-moon, a researcher at KB
Investment & Securities. "Further delays will be costly."
sam@yna.co.kr