FSC moves to roll over bad loans

Regulator instructs savings banks to secure sufficient cash


The financial authorities are moving to extend the maturity of bad loans the government purchased from savings banks in a bid to ensure a soft landing for the distressed industry.

Between 2008 and 2010, the state-run Korea Asset Management Corp. acquired bad loans of savings banks. The latter are supposed to repurchase the loans in three years.

KAMCO plans to roll over the bad loans in five years instead of three. When the maturity is extended by two more years as a “grace period,” savings banks will be allowed to repurchase the loans between 2013 and 2015, not between 2011 and 2013.

The Financial Services Commission, which has been initiating restructuring of the secondary banking sector, is also mitigating the banks’ burden of accumulating reserves for overdue loans.

While savings banks were originally instructed to accumulate provisions 11 times for three years, a revised guideline may allow them to enjoy 15 times for five years.

The FSC is also considering applying the new guideline to bad loans that are currently under the probe.

The regulatory body is conducting stress tests over 486 property projects financed by 89 local savings banks in order to screen out potential loan losses.

After completing the tests as early as this week, the financial authorities will push to sell loans classified as non-performing or likely to go sour to KAMCO in the coming months.

The FSC also has decided to postpone the application of the Korea-International Financial Reporting Standards on listed savings banks for five years in a bid to ease their burden of building up reserves.

In addition, the FSS, an executive arm of the FSC, said it has sent official letters to the banks demanding they secure sufficient assets, which could be capitalized shortly.

“Considering a bank run incident when the eight savings were ordered to suspend their operations, we instructed the others to take preemptive measures via the letters,” an FSS official said.

He said the issue is how they will secure liquidity in the case of massive withdrawals by depositors amid uncertainty in the market.

Apart from the scheduled rollover for a certain portion of bad loans, the financial authorities are expected to inject public funds to dispose of “nonviable” loans via KAMCO.

By Kim Yon-se (kys@heraldcorp.com)