asia pacific

South Korea to inject $45bn to aid banks

By John Burton in Seoul Published: September 22 2000 16:41GMT | Last Updated: September 22 2000 22:48GMT

South Korea said on Friday it would inject a further $45bn into the ailing banking sector to calm market fears about a new financial crisis.

The new round of funds will raise the total state cost of bailing out the financial sector to more than $130bn since late 1997, when Korea suffered a foreign debt crisis.

"I am very sorry. I apologise to the public for the need to raise additional public funds," said Jin Nyum, the finance minister.

The additional funds were nearly $20bn more than a recent government estimate of the cost to complete financial restructuring of troubled banks and investment trusts.

The government said it needed more funds because of delays in selling the assets of the insolvent Daewoo group, including the collapse last week of a deal to sell Daewoo Motor to Ford.

About $6.5bn of the funds will be used to help creditor banks write off loans to Daewoo. The rest is to eliminate a sharp rise in other bad loans to troubled companies.

The state-run Korea Deposit Insurance Corporation (KDIC) will raise $35bn through the issue of bonds and the rest from recycling public funds.

The funds will help debt-ridden banks to write off more bad loans before they are merged under a holding company by the end of the year.

There have been worries about a corporate liquidity crunch because of the banks' reluctance to extend new loans to prevent more losses on their balance sheet.

But the new financial plan could go awry because the opposition is boycotting parliament over political disputes with the government. "The government must get approval from the National Assembly by the end of October," Mr Jin said.

The stock market, which has fallen by 45 per cent this year over fears of financial instability, appeared to be unimpressed with the proposal as it tumbled by 7.1 per cent on Friday.

Analysts, however, said the plan showed a more realistic government attitude to the depth of problems.

The government hopes to recover some of the funds by privatising the nationalised banks through share issues in the second half of 2002, while selling non-performing loans and other assets held by KDIC next year.

The banks expected to receive the funds include Hanvit, Cho Hung, Korea Exchange and three small regional banks.

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-- Martin Thompson (mthom1927@aol.com), September 23, 2000

Answers

Another form of intervention--directly from the government--and just as futile as Japan's 11 injections of capital into its own economy since 1990. Now we have the Central Banks buying up the Euro, trying to bail it out.

Just as futile. When will they learn?

-- JackW (jpayne@webtv.net), September 23, 2000.