ID :
36243
Thu, 12/18/2008 - 13:48
Auther :
Shortlink :
http://m.oananews.org//node/36243
The shortlink copeid
S. Korea to set up 20-tln-won fund to boost bank capital
SEOUL, Dec. 18 (Yonhap) -- South Korea's financial watchdog said Thursday it plans to set up a 20 trillion won (US$15.4 billion) fund aimed at helping local banks raise their capital base to improve their financial health.
The Financial Services Commission (FSC) said it plans to create a fund in January
that will be used to buy preferred stocks, subordinated bonds and hybrid debt
sold by lenders. The fund will be operated until the end of 2009.
"The creation of the fund will help local banks beef up their capacity to absorb
possible losses in the face of a prolonged economic downturn and industrial
revamp," the FSC said in a policy report to President Lee Myung-bak.
According to the FSC, the Bank of Korea (BOK), the country's central bank, would
contribute 10 trillion won to the envisioned fund if its board approves the plan.
Institutional and individual investors would put 8 trillion won into the fund,
with state-run Korea Development Bank (KDB) chipping in 2 trillion won.
The move comes as South Korean lenders are struggling to bolster their falling
capital adequacy ratio, a key barometer of financial soundness, as the slowing
economy and a credit squeeze are increasing the amount of bad loans.
The average capital adequacy ratio of 18 commercial and state banks came in at
10.79 percent as of the end of September, the lowest in more than seven years and
down from 11.36 percent three months earlier. The ratio measures the percentage
of a bank's capital to its risk-weighted credit.
Local banks are making their own efforts to shore up the ratio mainly by selling
subordinated bonds. In selling such debts, lenders record the proceeds from the
debt offering as supplementary capital, which helps raise their capital adequacy
ratio.
"By improving banks' financial heath, the fund will help local lenders increase
their capacity to support smaller firms or exporters," the FSC said.
In return for the capital injections, banks will be required to beef up their own
self-help efforts by cutting costs and increasing support to smaller firms. They
should also refrain from using the money to increase their assets through
takeovers or other means, it added.
The watchdog said the government plans to increase the capital base of state-run
lenders KDB and the Industrial Bank of Korea by 2.3 trillion won to boost their
lending capacity. The measure would expand the two lenders' total corporate
lending by 14 trillion won to 68 trillion won, the FSC added.
The government also plans to expand its debt guarantee capacity for state-owned
credit guarantee agencies by 11.7 trillion won by boosting their capital base.
Amid the slowing economy, local banks and companies have been suffering from cash
shortages as higher credit risks discourage banks from lending to each other or
to smaller firms and households, tightening a credit squeeze.
sooyeon@yna.co.kr
The Financial Services Commission (FSC) said it plans to create a fund in January
that will be used to buy preferred stocks, subordinated bonds and hybrid debt
sold by lenders. The fund will be operated until the end of 2009.
"The creation of the fund will help local banks beef up their capacity to absorb
possible losses in the face of a prolonged economic downturn and industrial
revamp," the FSC said in a policy report to President Lee Myung-bak.
According to the FSC, the Bank of Korea (BOK), the country's central bank, would
contribute 10 trillion won to the envisioned fund if its board approves the plan.
Institutional and individual investors would put 8 trillion won into the fund,
with state-run Korea Development Bank (KDB) chipping in 2 trillion won.
The move comes as South Korean lenders are struggling to bolster their falling
capital adequacy ratio, a key barometer of financial soundness, as the slowing
economy and a credit squeeze are increasing the amount of bad loans.
The average capital adequacy ratio of 18 commercial and state banks came in at
10.79 percent as of the end of September, the lowest in more than seven years and
down from 11.36 percent three months earlier. The ratio measures the percentage
of a bank's capital to its risk-weighted credit.
Local banks are making their own efforts to shore up the ratio mainly by selling
subordinated bonds. In selling such debts, lenders record the proceeds from the
debt offering as supplementary capital, which helps raise their capital adequacy
ratio.
"By improving banks' financial heath, the fund will help local lenders increase
their capacity to support smaller firms or exporters," the FSC said.
In return for the capital injections, banks will be required to beef up their own
self-help efforts by cutting costs and increasing support to smaller firms. They
should also refrain from using the money to increase their assets through
takeovers or other means, it added.
The watchdog said the government plans to increase the capital base of state-run
lenders KDB and the Industrial Bank of Korea by 2.3 trillion won to boost their
lending capacity. The measure would expand the two lenders' total corporate
lending by 14 trillion won to 68 trillion won, the FSC added.
The government also plans to expand its debt guarantee capacity for state-owned
credit guarantee agencies by 11.7 trillion won by boosting their capital base.
Amid the slowing economy, local banks and companies have been suffering from cash
shortages as higher credit risks discourage banks from lending to each other or
to smaller firms and households, tightening a credit squeeze.
sooyeon@yna.co.kr
