Local banks likely clean bad loans of 10 tln won in H2

SEOUL, Aug. 9 (Yonhap) -- South Korean banks are likely to dispose of around 10 trillion won (US$9.13 billion) in problem loans in the second half as market turmoil could jack up their distressed loans, industry sources said Tuesday.
The Financial Supervisory Service (FSS), the financial watchdog, plans to receive local banks' second-half plans to clean their dud loans from their books during this month in an effort to make them beef up their financial health amid heightened external uncertainties.
"The current market situation should not develop into a severe credit crunch as seen during the global financial turmoil. But the bad loans could become a drag on local banks," said an official at the FSS.
As of end-June, local banks held 23 trillion won in non-performing loans, which are overdue more than three months, down 3.2 trillion won from three months earlier. The ratio of bank bad loans fell 0.27 percentage point on-quarter to 1.73 percent as of the end of June. A bad loan ratio refers to the rate of non-performing loans to aggregate lending.
FSS Gov. Kwon Hyouk-se earlier suggested that local bank heads cut the ratio to 1.5 percent by the end of this year, spawning speculation that the watchdog may seek to lower the ratio to around 1 percent next year.
Korean banks disposed of bad debt worth of 13.4 trillion won from their balance sheets in the first half by writing down bad loans or selling part of them to a bad bank.