Gov't Promises Incentives for Bank Mergers -- Banks Striving to Unload Bad Loans

Article excerpt

The government is expected to provide ``incentives'' for commercial banks to undertake mergers, widely believed to be the key point of the second round of financial sector restructuring.

The plan to encourage bank mergers came amid reports that banks are competing to eliminate about 13 trillion won in nonperforming loans this year and next.

At his meeting with presidents of commercial banks at the Bankers Club yesterday, Financial Supervisory Commission (FSC) Chairman Lee Yong-keun said, ``The government has no pre-written scenario for financial sector restructuring.''

``Our one and only principle is to ensure the maximum synergistic effects from whatever form restructuring takes,'' Lee told the bank heads.

Asked for incentives for voluntary bank mergers by top bank officials, Lee answered, ``We will consider various ways.''

FSC spokesman Kim Yong-jae explained that the types of incentives to be given need to be studied, but that they were not likely to be in the form of cash, but rather systematic support.

Lee's remark comes amid reports of banks' plan to step up efforts to get rid of a pile of bad loans from their balance sheet this year and next.

The banks that are expected to stage such self-improvement efforts include Korea Exchange Bank, and the Cho Hung and Hanvit banks, which have received trillions of won in public funds. They are planning to lower their respective bad loan portion to about 2 percent of the total, a level met by healthy foreign banks.

According to reports and sources in banking circles, the KEB plans to lower its total bad loans from 3.4 trillion as of the end of March to 1.3 trillion won, or about 10 percent, by the end of the year.

By 2001, the KEB aims to further lower it to 700 billion won, or about 2 percent of the total loans.

As the first step, the KEB plans to sell $200 million in nonperforming assets overseas this year and about 800 billion won in domestic NPLs in competitive bidding in June or July. …