Commercial lenders wary of tapping 'bank fund'

SEOUL, Jan. 8 (Yonhap) -- Local commercial banks are reluctant to tap a proposed
fund aimed at helping them increase their capital base due to fears it may
tarnish their credibility, industry sources said Thursday.
The government is seeking to launch a 20 trillion won (US$15.2 billion) fund this
month to be used to buy preferred stocks, subordinated bonds and hybrid debt sold
by lenders. Local banks can tap the fund on a voluntary basis.
South Korean banks are struggling to bolster their falling capital adequacy
ratios, a key barometer of financial soundness that measures the percentage of a
bank's capital to its risk-weighted credit.
The average capital adequacy ratio of 18 commercial and state banks came in at
10.86 percent as of the end of September, down 0.5 percentage point from three
months earlier.
The ratio is widely expected to fall further as local lenders are forecast to
face increasing bad loans down the road in tandem with a deepening economic
slump.
The government intends to set up the fund to help banks increase lending to
cash-strapped companies and households. But due to fears over management
interference and their reputation, commercial banks are wary of dipping into the
fund, analysts say. So far only state-run banks have said they plan to make use
of it.
Woori Bank, the flagship of Woori Finance Holdings Co., said Wednesday it plans
to secure about 2 trillion won in capital through the fund.
The two other banking units of Woori Finance -- Kyongnam Bank and Kwangju Bank --
are also considering using the fund to jack up their capital adequacy ratios,
according to sources. Woori Finance is 72.97 percent owned by the government.
"Domestic banks made their own efforts to boost their capital bases at the end of
last year due to fears that the government may interfere in their management in
return for the use of the fund," an official at a local bank said. "Even some
banks whose core capital ratio fell below nine percent are trying to jack up the
capital base themselves."
The Financial Supervisory Service, the country's financial watchdog, advised
local banks to raise the so-called tier-one capital ratio, a barometer of a
bank's core financial health, to over nine percent by the end of this month.
The average tier-one capital ratio of 18 lenders reached 8.33 percent as of the
end of September, down 0.21 percentage point from a quarter earlier, according to
the watchdog.
sooyeon@yna.co.kr
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