Total contribution expected to amount to 1.23 trillion won


A bad bank, which would specialize in absorbing bad loans held by financial companies, will be set up as early as this month, banking sources said Tuesday.

“The bad bank may possibly be launched by the end of this month,” a bank official said. “But the launch could be delayed into next month due to the time needed to fine-tune terms of the bad bank formation,” the official told Yonhap News.

Seven commercial banks, such as Kookmin and Woori, have decided to participate in establishing the bad bank in coordination with UAMCO Ltd., a bad loan purchasing firm launched in 2009.

The bad bank, more specifically, will acquire overdue loans issued to the construction industry over the past few years.

While the market had expected that the entity will launch this month, several bankers say the timing could be delayed as each banks’ share of expenses increased in the wake of Korea Exchange Bank’s withdrawal from its probable participation.

The participants will include Kookmin, Woori, Shinhan, Hana, Korea Development, Industrial Bank of Korea, and the National Agricultural Cooperative Federation (also called Nonghyup).

Banks whose single biggest shareholder is foreign investors, such as KEB, Citibank Korea, SC First Bank and HSBC will not attend the joint move.

Participating banks will contribute money to the bad bank according to the size of their dud real estate loans, with the total contribution expected to reach up to 1.23 trillion won, according to the banking industry.

After launching, the debt clearer is expected to purchase up to 1 trillion won in face value of soured PF loans held by the local banking sector for about a 50 percent discount, bankers said.

The banks are planning to set up one or two more bad banks of a similar size in case the industry faces further growth in defaults in such distressed PF lending.

Market observers say some commercial banks are unhappy with the bad bank plan, arguing that the move will likely pass the burden only onto the commercial banking sector.

A local banker said it will be problematic if the bad bank goes further to buy mutual savings banks’ property loans, in addition to those by the bank sector itself.

By Kim Yon-se (kys@heraldcorp.com)