Watchdog urges banks to extend more loans to smaller firms

SEOUL, Dec. 22 (Yonhap) -- The chief of South Korea's financial watchdog on
Monday urged local banks to increase efforts to bolster their slumping capital
base and to extend more loans to smaller firms suffering from a credit crunch.

"Local banks are worried over falling capital adequacy ratio. The watchdog hopes
that lenders seek to meet their targets to bolster their capital," Kim
Jong-chang, governor of the Financial Supervisory Service (FSS), said at meeting
with the heads of seven local banks.
"As the government also plans to support their efforts through the bank
recapitalization fund, we call for lenders to extend more support to smaller
firms."
His remarks came 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.
On Thursday, the government said it will set up a 20 trillion won (US$15.5
billion) fund in January aimed at helping local banks raise the capital base. The
fund will be used to buy preferred stocks, subordinated bonds and hybrid debt
sold by lenders. Local banks can tap the fund on a voluntary basis.
Amid the slowing downturn, 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.
According to the central bank, outstanding bank loans to smaller firms reached
404.1 trillion won as of the end of November, up 2.6 trillion won from the
previous month.
sooyeon@yna.co.kr
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