Sweeping revamp stares smaller firms in the face

SEOUL, July 15 (Yonhap) -- South Korean banks will carry out a sweeping revamp of
ailing small and mid-size companies in an effort to keep their potential defaults
from denting the slumping economy, the financial watchdog said Wednesday.
The restructuring drive comes after lenders completed a comprehensive review of
the credit risks of 861 small and medium enterprises (SMEs) with debts between 5
billion won (US$3.9 billion) and 50 billion won.
Under the restructuring measure, creditor banks will weed out 36 troubled firms
and reschedule debts at 77 companies, the Financial Supervisory Service (FSS)
said.
Bank lending to such firms reached 1.6 trillion won, while the revamp will likely
to force lenders to put aside about 280 billion won in additional loan-loss
reserves, it said.
The government has urged local creditor banks to accelerate restructuring of
teetering companies as a possible chain reaction of business failures could sap
the financial health of the banking sector, undermining a fragile economic
recovery.
The FSS said it will advise creditor banks to assess the financial health of SMEs
whose debts surpass 3 billion won by the end of September. It said about 10,000
companies would be on the list for the review.
The move follows the recent decision by local banks to reschedule debts or end
support for 33 larger companies. In late May, nine liquidity-squeezed large
business groups signed agreements with banks calling for enhancing their
financial health.
In late March, lenders decided to end support to five smaller ailing companies
and reschedule debts at 15 construction firms and shipbuilders to keep potential
defaults from denting the slowing economy following a similar move in January.
sooyeon@yna.co.kr
(END)