S. Korea's 'bank fund' to set sail in Q1

SEOUL, Jan. 12 (Yonhap) -- South Korea plans to launch a fund aimed at helping
local lenders in the first quarter in a move to help bolster their falling
capital adequacy ratios, the financial watchdog said Monday.

The government is seeking to launch a 20 trillion won (US$14.7 billion) fund 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.
"In the first three months of this year, the government plans to start providing
help to local banks through the fund," the Financial Services Commission (FSC)
said in a report to the National Assembly. "The government plans to decide
whether to support them additionally, given the progress of their efforts to push
corporate restructuring and financial health."
The move comes as South Korean lenders are struggling to jack up their falling
capital adequacy ratio, a key barometer of financial soundness that measures the
percentage of a bank's capital to its risk-weighted credit.
The government is calling for local banks to raise their capital ratio, which
would help them increase lending to cash-strapped smaller firms in the aftermath
of the U.S.-sparked financial turmoil.
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.
According to the FSC, the fund is expected to mainly buy hybrid bonds, whose
sales will help raise the so-called tier one ratio, a barometer of core capital.
Hybrid bonds are securities that combine the properties of debt and equity.
"The government will minimize a possible interference of managements for banks
which would dip into the fund, but it plans to levy necessary but minimal
conditions for them to increase lending in return for getting help," the FSC
added.
Local commercial banks are reluctant to tap the envisioned fund due to fears it
may tarnish their credibility.
Last week, Woori Bank, the banking unit of Woori Finance Holdings Co., said it
would tap the fund as part of efforts to raise about 2 trillion won in capital.
Woori Finance is 72.97 percent owned by the government.
sooyeon@yna.co.kr
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