Regulator to inject 1.4 tln won to buy bad property loans

SEOUL, June 24 (Yonhap) -- The financial regulator said Friday it plans to buy bad property project finance (PF) loans worth up to 1.4 trillion won (US$1.29 billion) from savings banks as part of its efforts to prop up the ailing sector.
The move comes after the Financial Services Commission (FSC) and its executive body, the Financial Supervisory Service, conducted stress tests on 469 property projects financed by 89 local savings banks between May 30 and June 9.
"The latest purchase is designed to promote the stability of the savings banking sector and encourage industry players to take self-rescue measures," the regulator said in a statement.
Under the plan, the Korea Asset Management Corp. (KAMCO) will use its state restructuring fund to buy non-performing property loans at 70-80 percent of their book values. The move will permit the purchase of 2.2 trillion won worth of PF loans from troubled savings banks, the FSC said.
The latest action marks the government's fourth purchase of soured PF loans from savings banks. Between December 2008 and June 2010, the government purchased 5.4 trillion won worth of bad debts.
The government has been pushing to salvage savings banks struggling from deteriorating asset qualities, caused by defaults on property PF loans. A prolonged slump in the housing market crippled builders' ability to repay loans, which led to a pileup of soured PF loans on savings banks' balance sheets.
A total of eight savings banks underwent business suspensions earlier this year due to capital shortage stemming from such loans.