Regulator pushes to clear soured PF loans by savings banks in June

(ATTN: ADDS more measures in last 5 paras)
SEOUL, June 1 (Yonhap) -- South Korea's financial regulator said Wednesday that it is pushing to tap public funds to pick up savings banks' soured property project finance loans this month as part of efforts to prop up the ailing sector.
The Financial Services Commission (FSC) and its executive body, the Financial Supervisory Service (FSS), are conducting on-site or written stress tests over 468 property projects financed by 89 local savings banks in order to screen out potential loan losses, the top regulator FSC said.
After a stress test is conducted between May 30-June 9, the regulator will push to sell loans classified as non-performing or likely to go sour to the Korea Asset Management Corp. (KAMCO) during June, it said.
"The latest measure of clearing bad assets is expected to improve management soundness of savings banks," the FSC said in a statement.
KAMCO will utilize its internal funds and 3.5 trillion won (US$3.3 billion) in public money earmarked for rescheduling soured debts, it said.
The measure came after savings banks' asset quality continued to tumble due to growing defaults on property project finance loans. A prolonged housing market slump crippled builders' ability to repay loans, resulting in a pileup of soured project finance loans on savings banks' balance sheets.
A total of eight savings banks had their business suspended earlier this year due to capital shortage stemming from losses from such loans.
As part of efforts to salvage the ailing sector, KAMCO picked up 5.2 trillion won of non-performing project finance loans between December 2008 and April 2010.
The FSC also unveiled measures to limit savings banks' sale of subordinate bonds in a bid to prevent debt holders' losses and bolster financial health of savings banks.
Savings banks with both a capital adequacy ratio and a core capital ratio above the 8 percent level will be allowed to sell subordinate bonds in public offerings from July, the regulator said.
Currently, banks with a capital adequacy ratio higher than 8 percent and a core capital rate over the 6 percent threshold are allowed to float such junior bonds that hold lower priority than holders of other types of bonds in collecting credit in case the issuer goes bankrupt.
The measures came after holders of subordinate bonds issued by the eight suspended savings banks came under massive potential losses for their holdings of such risky bond types that are not covered by the government's deposit insurance policies.
Since savings banks first issued such bonds in 2004, about 1.5 trillion won of subordinate bonds have been sold by local savings banks, the FSC noted.
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