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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (2915)	4/6/1998 9:38:00 AM
From: Worswick	Read Replies (2) \| Respond to of 9980

For PrivatSouth China Morning Post Internet Edition -------------------------------------------------------------------------------- Monday April 6 1998 Korea's non-performing loans reach $362b NICK LONG in Seoul South Korean financial institutions have 67.8 trillion won (about HK$362.59 billion) of loans on which no interest has been paid for three months, and 32 trillion won in loans that have paid no interest in six months, according to a newspaper report. The Korea Economic Daily quoted the figures citing a senior official at the government's new financial services commission. The figure of 67.8 trillion won suggests that about 15 per cent of bank credit is bad or doubtful. SBC Warburg Dillon Read said last month non-performing loans in the Korean banking sector would peak at about 30 per cent of bank credit, and 50-70 per cent might have to be written off. Rating agency Moody's Investor Services said the non-performing loan level could increase to 20-25 per cent of bank credit this year. "If your non-performing loans are more than 15 per cent of credit you've got a banking crisis," said David Marshall, director of the credit rating agency Fitch IBCA, who expects a full-blown crisis to develop in the next 12 months. "I expect we'll see a succession of banks finding it too tough to cope." Mr Marshall argues that the crisis has begun already with the nationalisation in January of two of Korea's largest banks, Korea First and Seoulbank, and the closure of 14 of the country's 30 merchant banks. The crisis may not take the form of massive deposit runs. Since the mini-runs on Korea First and Seoulbank last year after it was announced they would be merged and then sold off, depositors have not been rushing to withdraw funds. "The average person in Korea would not think of taking their money to Hongkong Bank or Citibank," Mr Marshall said. "Ultimately people do still trust the government to protect the banking industry." SBC Warburg Dillon Read said the potential cost of bailing out insolvent banks could come to 12 per cent of gross domestic product. South Korean public sector debt was only 15 per cent of GDP in 1996, very low by international standards. In theory the government would only need to raise that figure by 5-10 per cent over the next few years to provide the finance to write off the banks' bad loans and recapitalise a streamlined banking sector. Most analysts expect the process to be prolonged. Swifter action might enable South Korea to emerge with a truly competitive banking system, but the short-term cost in bankruptcies and higher unemployment would probably deter even the most ardent reformers from forcing the pace. "If Chinese banks had to write off their bad loans nearly all of them would go out of business," said Moody's analyst Joshua Wang. "We have to look at how many years it will take for Korean banks to restore their earning ability. They can recover gradually provided they aren't exposed to too many shocks."