S. Korea to pour 1 tln won into troubled savings banks

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SEOUL, Dec. 3 (Yonhap) -- South Korea's financial watchdog said Wednesday that it
will inject 1 trillion won (US$682.5 million) in public funds this month to help
savings banks cope with bad loans.
The bailout funds are the first large-scale injections into financial
institutions since 2003. The state-run Korea Asset Management Corp. is to take
over 164 private financing arrangements that have turned bad, the Financial
Services Commission (FSC) said.
The regulator said 89 savings banks have provided 12.2 trillion won in private
financing to areas such as construction, but repayment problems have surfaced
with the deepening economic slump.
There has been persistent speculation that some savings banks may collapse due to
bad loans tied up in construction and real estate deals.
The FSC also said that savings banks that are experiencing problems will have to
engage in workout programs, including measures to increase capital by large
shareholders, limit dividend payments, and seek mergers with other firms.
Private experts, however, said the emergency measures may not be able to fully
relieve challenges facing lenders.
"The possibility that the construction sector may experience even more difficult
times next year is a source of concern," Kwon Soon-woo, a chief analyst at
Samsung Economic Research Institute (SERI), said. He said if such developments
take place, the percentage of arears on loans could rise.
This concern was echoed by insiders at a local savings bank, who said the
weakness in the construction sector remains a lingering source of concern.
However, they said that while the decision to inject bailout funds would help,
project financing only accounts for a fourth of the loans.
"Worsening economic conditions are jeopardizing loans to both small- and
medium-sized enterprises and households," an official said.
He said that while banks could withstand losses in the short run, additional aid
may be needed if the economy does not improve next year.
yonngong@yna.co.kr
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