$27 Bil. Restructuring Fund to Be Set Up
By Yoon Ja-young
Staff Reporter
A 40 trillion won ($26.9 billion) corporate restructuring fund will be set up to take over bad debts of lenders and assets of businesses under restructuring. The fund will support lenders along with another financial market stabilizing fund and the previously announced 20 trillion won bank recapitalization fund.
Financial Services Commission (FSC) Chairman Chin Dong-soo said Friday that a 40 trillion won corporate restructuring fund, which would be set by issuing government-guaranteed bonds, would be managed by 2014 after submitting bills to finance it.
The fund under the Korea Asset Management Corporation (KAMCO) would buy the bad debts of financial companies and assets of ailing companies, as was the case after the burst of the Asian financial crisis in 1997. The government had set a 38.5 trillion won fund to buy bad debts back then. The fund recovered 42.4 trillion won by last year as some of the ailing companies succeeded in getting back on track in the end.
``Due to worsening external economic conditions and deteriorating exports and the local economy, difficulties are expected to continue,'' Chin said. ``Securing capital is necessary to enhance the soundness of financial companies and their capability to support the economy,'' he added.
He stressed that the fund has nothing to do with Fitch's estimation that Korean banks may suffer 42 trillion won in additional losses by the end of next year. He wondered why the global credit rating agency carried out the stress test on only Korean banks while banks in every other country are seeing soundness get worse.
The top financial regulator said a special fund will be established to help stabilize financial companies, including not only banks but also credit financiers and financial holding companies.
Healthy banks with over 8 percent BIS ratios would be eligible for the fund set up by the policy financing company, which will be split off from the Korea Development Bank. Related bills will be submitted first to make ground for supporting financial companies in normal shape.
This fund will also be established by issuing government guaranteed bonds. ``It would be like setting up another fund to recapitalize banks,'' Chin said.
The financial companies that will have received support from the fund will need to sign memorandums of understanding (MOUs) in return for support financing small and medium-sized businesses currently suffering serious liquidity problems.