Top Regulator Says Bank Restructuring Is Untimely

South Korea's top financial regulator said Wednesday that now is not the time for the government to pour public funds into local banks, as the difficulties they face do not warrant an overhaul.

"Takeovers could come up in the market if some local banks fail to beef up competitiveness or secure enough capital through self-help measures," Yonhap News quoted Jun Kwang-woo, chairman of the Financial Services Commission (FSC), as telling a radio program.

"If market forces do not work well, the government could play the role of a catalyst, but it is not the time for the government to push for a banking overhaul."

His remarks were seen as a turnaround from what he said last week in New York. Jun told reporters then that the government should play an active role in tackling the current financial turmoil, hinting at a possible restructuring of the local banking sector.

South Korean lenders have been increasingly reluctant to extend loans, particularly to smaller firms, amid a slowing economy and a credit crunch.

In the aftermath of the 1997-98 Asian financial crisis, the local banking sector underwent a painful restructuring process under the auspices of the government, which injected over 86.9 trillion won ($57.9 billion) in taxpayers' money into the industry.

A series of consolidations in the banking sector reduced the number of commercial lenders to 18 from 33 prior to the crisis.

Jun added that the government must implement a more expansionary fiscal policy to bolster the slowing economy and called for the central bank to ease its monetary stance.

Since October, the central Bank of Korea has cut its key interest rate by a combined 1.25 percentage points to 4 percent.