S. Korea banks feared to suffer massive losses on mounting bad loans
7 January 2015
Yonhap English News
SEOUL, Jan. 7 (Yonhap) — South Korean banks are expected to suffer massive losses due to a series of bankruptcies and suspensions of big-name companies amid a protracted economic slump in the country, industry data showed Wednesday. Dongbu Corp., a construction arm of the 18th-largest conglomerate Dongbu Group, filed for court receivership last week, after admitting it was unable to pay off some 262 billion won (US$238 million) it had borrowed from several local banks, according to the data. Banks will likely set aside reserves against the bad loans extended to the builder, and their loan-loss reserves are expected to increase further if the financially shaky firm’s 1,713 subcontractors go bankrupt in the near future.
Taihan Electric Wire Co., one of South Korea’s largest electrical materials manufacturers, was suspended from stock trading by the bourse operator on Dec. 24 for accounting fraud.Its creditor banks, which own the company’s shares worth 700 billion won through a debt-equity swap, may face some 250 billion won in losses as the share price plunged to 1,200 won from 2,500 won.
Moneual Inc., a mid-sized home appliances maker, was declared bankrupt last month, and some banks have to shoulder 677 billion won in loans extended to the company.
Market watchers said the bad corporate debts from the three troubled companies reached nearly 1 trillion won and would make banks reluctant to extend new corporate loans to smaller firms.
“This year, we have decided to give new corporate loans to our old customers but reduce loans to new faces,” said a bank official who asked not to be named.
“Due to a series of bankruptcies, banks will likely cut back on corporate loans to small and mid-sized firms or demand early payoff,” said Choi Bok-hee from the Korea Federation of Small and Medium-Sized Enterprises.