S. Korean banks' PF loans shrink in Q1

SEOUL, May 20 (Yonhap) -- South Korean banks' outstanding project financing (PF) loans declined in the first quarter from three months earlier as they scaled back such loans amid a slumping real estate market, the financial regulator said Friday. The combined property PF loans by 18 local banks stood at 36.5 trillion won (US$33.6 billion) as of the end of March, down from 38.7 trillion won as of end-2010, the Financial Supervisory Service (FSS) said in a report. The total PF loans accounted for 3 percent of the banks' combined lending. The contraction is attributable to banks' risk management amid the property market slump, the FSS said. Banks are facing industry-wide turmoil as growing defaults on their PF loans are feared to impair their asset quality and hurt profitability. As of end-March, the banks' average non-performing loan ratio reached 18.35 percent, rising from 16.44 percent three months earlier, according to the FSS. It also compares with 3.41 percent posted at the end of March in 2010. The average default rate, meanwhile, stood at 5.3 percent as of end-March, compared with 4.25 percent registered three months ago, it said. "A prolonged real estate market slump and builders' debt restructuring are likely to further increase bad loans," the FSS said. In a bid to clear massive soured loans, the bank industry is moving to establish a bad debt clearer to pick up the distressed assets off their balance sheets