By Kim Tae-gyu
Staff Reporter
In a second-round review of Korea's embittered construction and shipbuilding businesses, 20 entities, or 27 percent, were found to be suffering from financial trouble.
A total of 12 domestic banks have examined the viability of 70 mid-sized builders and four second-string shipyards over the past few weeks to reach this conclusion.
``Fifteen outfits will go through debt workout programs,'' Joo Jae-seong, an assistant governor at the Financial Supervisory Service (FSS), said at a press conference Friday.
``Furthermore, banks will not extend loans to the remaining five among the 20 ailing players' list because their balance sheets are much worse. In other words, the five got the worst grade,'' Joo said.
He noted the proportion of unhealthy companies had almost doubled compared to a first-round review in January. Back then, banks brought under microscope 112 bigger outfits in the two industries and judged 16, or 14.3 percent, were not functional.
However, the assistant governor claimed that it would not make a big dent in bank profitability or financial health since the 20 firms were mainly minnows.
``As of the end of last month, the 20 companies at issue borrowed just 1.6 trillion won. As a result, banks will be required to put around 19.6 billion won more in their loan-loss reserves. That is not a big deal,'' Joo said.
The decisions are still expected to raise criticism that the country is being lackluster in ousting corporations destined to fold.
``In my view, banks are too mild in evaluating struggling debtors. It's understandable because downsized or liquidated firms eventually undermine their own balance sheets,'' a Seoul analyst said.
``Over the long haul, however, they had better give up nonviable companies. The government is required to prompt banks to follow such a strict policy,'' he said.
Asked about whether the FSS, the country's top financial regulator, would test the financial status of the 112 companies reviewed in the first round in January, Joo was negative.
``Of course we now have the fourth-quarter results of the firms that will give updated information. But we won't encourage any across-the-board review once again, although some banks may do it on their own,'' he said.
The query came due in no small part to Nonghyup, or the National Agricultural Cooperative Federation.
In the first-round check, the farmers' bank concluded Shinchang Construction, one of its debtors, was generally healthy, excluding some concerns over a temporary lack of cash.
Unexpectedly, however, Shinchang filed for court receivership last month, raising the ire of the FSS, which thought something might be wrong with Nonghyup's evaluation.
The FSS sent four inspectors early this month to examine how and why Nonghyup assessed nonviable firms as functional. Joo said that the FSS would announce its results soon.