Banks Urge To Pull Out Loans To Minor Firms

Monday, 22 December, 2008

The chief of South Korea's financial watchdog Monday urged local banks to step up efforts to bolster their slumping capital base and extend more loans to smaller firms suffering from a credit crunch, according to Yonhap News.

"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 credit loans.

On Thursday, the government said it will set up a 20 trillion won ($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.

Source: koreatimes.co.kr