By Kang Seung-woo
A debt clearing house or a bad bank, backed by other banks and the government, is likely to acquire 1 trillion won worth of soured construction loans by June. Lenders are trying to salvage as much as they can from their non-performing assets, a financial watchdog and sources at the banking sector said Thursday.
According to the Financial Supervisory Service (FSS) and banking industry officials, eight banks, along with the United Asset Management Corp. (UAMCO), a bad asset buyer created by these banks under government supervision, plan to contribute about 1.2 trillion won to establish a bad bank in a bid to bolster their balance sheets.
The eight lenders are Kookmin, Woori, the National Agricultural Cooperative Federation (Nonghyup), Shinhan, the Korea Development Bank (KDB), Hana, Korea Exchange Bank (KEB) and the Industrial Bank of Korea (IBK).
A bad bank is a financial vehicle that takes over non-performing loans from other banks, enabling them to make a fresh start.
The move came as the nation’s financial authorities are pushing local banks and non-bank financial institutions to dispose of troubled project financing (PF) lending, which experts say could emerge as a threat to the financial industry.
The new debt-clearing agency, which will be a variant of a private equity fund (PEF) managed by the state-run UAMCO, will pick up the 1 trillion won worth of soured property loans at a 50 percent discount, the two sides said.
Local banks currently shoulder about 6.7 trillion won worth of risky construction loans, and the rate of soured PF bank loans reached 18.01 percent as of the end of March this year, up 1.57 percentage points from three months earlier.
Participating lenders will contribute money to the envisioned bad bank in accordance with several considerations including the size of their total PF and dud real estate loans
“The new bad bank is expected to significantly clear banks’ distressed PF loans,” an FSS official said.
As part of efforts to clean up lenders' distressed loans, the watchdog said it will supervise banks in selling or writing off a combined 3 trillion won in bad debts by the end of this year.
There is some speculation that the creation of a bad bank is likely to take longer than expected due to difficulties in negotiating and determining how much each lender should pool to set it up.
“The amount of money from bank has not been decided yet. The participants have been discussing the issue to reduce their burdens,” said an official of the banking industry. They plan to hold a meeting on Friday to finalize each player’s portion.
Since the global financial crisis hit the nation’s property market hard in 2008, the industry has yet to see any signs of rebounding, crippling builders’ ability to repay loans extended during a previous market boom to finance their construction projects.