• 04 / 07 / 2009
  • Inside Look_Bad Loans Biggest Threat to Korean Banks

  • Q: credit credit-grading agency Fitch for sometimes been saying the bad loans are bigger threat to the banks in Republic of South Korea. Then their foreign currency debt lenders need to boost their capital. South Korea¡¯s economy of course heading for recession in a decade, how's the banking sphere doing?

    Join this Morning by Dr. Chong gu lee from the Korean Financial Services Commission who's in the big apple there New York City for a lot's and lots of meetings all around.
    Dr. good evening to you. How bad is the situation with Korean banks? Is it something to ring set alarm bells off about or something being done to remedy whatever the issues there are.

    A: Well I don't think that the Korean Banks are in dire situation.
    Korean Banks are so different from 10 years ago when we had lot of short-term debts and lot of bankruptcy in the corporate sector. But Korea right now, although there is deepening recession, banking sector is generally quite healthy.
    We have already accumulated about 16 trillion won of additional capital by January of this year and also we have established 20 trillion won of bank recapitalization fund which will help Korean banks go through this difficult situation.

    Q: Doctor, there are so many little problems there going on not that least that which is like 40 % dive in the Korean won which is driven up the cost of U.S dollar de nominated debt.
    Are you saying that you have good grip on this situation that no further won appreciated needs provisioning need to be employed?

    Q: Well I believe that maybe there are additionary provision required as more house hold or corporate sectors are finding themselves in difficult situations. But what I¡¯m saying is Korean regulators have already well prepared for such a situation and the capital of the banks are at this stage quite relatively convertible level. We have already more than 12% of the BIS ratio and our simple leverage ratio is far less than advanced countries we have only about 16 in terms of simple leverage ratio when some other banks, major banks in other countries have much higher leverage ratio. So I believe that we will be able to weather this storm and we will come out quite strongly.

    Q: What's going to happen with 25 billion foreign currency debt now that mature between now and end of the year? That's quite big repayment schedule there

    A: Right, but I guess there has been some misunderstanding about nature of our foreign currency debt. 10 years ago, Korean Banks vowed heavily short term to make a local currency lending which have not had FX backing, reserve banking. But right now the situation is lot more different, more than 20% of our debt that is going to murture within this year is actually backed by export such as ship orders which will be cleared when ships are delivered for example so we don't have serious problem.
    We also have a quite good SWAP line with the U.S fed and also china and Japan with each country about 30 billion dollar worth of SWAP arrangement and currently role of ratio of Korean Bank more than one hundred percent. So we don't think there is any insolvency issue or liquidity issue. We are expecting this year current account surplus because of the low oil price.

    Q: One more question for you doctor, starting this month billions of dollars going to be injected from the state re capitalization, Shinhan Woori Kookmin and the others. How nationalize is your banking industry going to be in the end.

    A: No, actually we are not going to nationalize any of these banks. This capital injection is not in the form of commercial share or ? private share. It is in the form of subordinated bonds as well as hybrid bonds and there will be no interference in the management of the banks by the government. It is just designed to provide the support to the real economy

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