By Choi Kyong-ae
The financial regulator urged banks to weed out debt-ridden nonviable companies, dubbed "zombie firms" here, Tuesday.
Financial Supervisory Service (FSS) Governor Zhin Woong-seob called for banks to speed up restructuring of such heavily indebted companies and put aside sufficient loan-loss provisions to weather growing external risks.
Zombie firms refer to debt-ridden companies which are unable to pay interest on their borrowings with their operating profits.
"Banks must separate companies which carry debt but have growth potential from those zombie firms which have a slim chance of survival," Zhin said at a breakfast meeting with the chiefs from 10 commercial banks.
This was the second such meeting since he met bank heads from KB Kookmin Bank, Shinhan Bank, Woori Bank, KEB Hana Bank, Citibank, Industrial Bank of Korea, NH Bank, Daegu Bank and Busan Bank in May.
Based on a thorough analysis of companies' capability of paying back their debts, banks are told to make a decision on whether to extend additional fresh loans.
The move is in line with the government's measures announced in July to handle possible risks from soaring household debt which now hovers over 1.1 quadrillion won.
Under the measures, banks are planning to apply stricter rules when extending mortgages to customers, individuals and businesses from next year in order to reduce non-performing loans.
"First of all, banks need to look into themselves on whether they have a financial health and manage risks well. If banks are not in good financial health, they have to pay more attention to risk management and their financial status," Zhin said.
Banks, domestic or multinational, have suffered declining net interest margins in recent years due to fiercer competition and falling interest rates. The country's benchmark interest rate stands at a record low of 1.5 percent after four rate cuts since August last year.
In the January-September period, three major banks posted steep declines in operating profit compared to a year earlier.
Shinhan Bank saw its operating profit plunge 11 percent to 1.42 trillion won ($1.3 billion) from 1.59 trillion won a year earlier. KB Kookmin Bank posted a 14 percent year-on-year decline in operating profit to 946.9 billion won in the first nine months from 1.102 trillion won. KEB Hana Bank's operating profit fell 8.9 percent to 484 billion won from 531 billion won during the same period, according to regulatory filings.
External uncertainties such as an economic crisis possibly resulting from China's slowdown and the planned U.S. interest rate increase late this year or early next year remain woes for banks and the overall economy.
The financial regulator urged banks to weed out debt-ridden nonviable companies, dubbed "zombie firms" here, Tuesday.
Financial Supervisory Service (FSS) Governor Zhin Woong-seob called for banks to speed up restructuring of such heavily indebted companies and put aside sufficient loan-loss provisions to weather growing external risks.
Zombie firms refer to debt-ridden companies which are unable to pay interest on their borrowings with their operating profits.
"Banks must separate companies which carry debt but have growth potential from those zombie firms which have a slim chance of survival," Zhin said at a breakfast meeting with the chiefs from 10 commercial banks.
This was the second such meeting since he met bank heads from KB Kookmin Bank, Shinhan Bank, Woori Bank, KEB Hana Bank, Citibank, Industrial Bank of Korea, NH Bank, Daegu Bank and Busan Bank in May.
Based on a thorough analysis of companies' capability of paying back their debts, banks are told to make a decision on whether to extend additional fresh loans.
The move is in line with the government's measures announced in July to handle possible risks from soaring household debt which now hovers over 1.1 quadrillion won.
Under the measures, banks are planning to apply stricter rules when extending mortgages to customers, individuals and businesses from next year in order to reduce non-performing loans.
"First of all, banks need to look into themselves on whether they have a financial health and manage risks well. If banks are not in good financial health, they have to pay more attention to risk management and their financial status," Zhin said.
Banks, domestic or multinational, have suffered declining net interest margins in recent years due to fiercer competition and falling interest rates. The country's benchmark interest rate stands at a record low of 1.5 percent after four rate cuts since August last year.
In the January-September period, three major banks posted steep declines in operating profit compared to a year earlier.
Shinhan Bank saw its operating profit plunge 11 percent to 1.42 trillion won ($1.3 billion) from 1.59 trillion won a year earlier. KB Kookmin Bank posted a 14 percent year-on-year decline in operating profit to 946.9 billion won in the first nine months from 1.102 trillion won. KEB Hana Bank's operating profit fell 8.9 percent to 484 billion won from 531 billion won during the same period, according to regulatory filings.
External uncertainties such as an economic crisis possibly resulting from China's slowdown and the planned U.S. interest rate increase late this year or early next year remain woes for banks and the overall economy.
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