South Korea banks to put up debt clearer

Seven lenders with huge outstanding loans will furnish the capital to establish the debt clearer with $1.12bn capital.

South Korean banks are expected to launch a special purpose company this month in an effort to buy soured property project financing (PF) loans that threaten their financial health, sources said Tuesday.

Local lenders have vowed to jointly set up the bad bank to clear part of the 6.4 trillion won (US$5.8 billion) distressed PF loans held by the bank sector. PF lending, which is extended mainly to builders on the basis of expected cash inflows from their construction projects, has emerged as a drag on the financial sector as a massive amount of the loans went sour following a series of local builders' bankruptcies.

The debt clearer will likely go into operation later this month with 1.23 trillion won ($1.12 billion) in total capital, the sources said.

"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 time needed to fine-tune terms of the bad bank formation."

Seven local banks with large outstanding PF loans will pool the capital in order to establish the debt clearer, along with UAMCO Ltd., a bad asset buyer launched in 2009 by the bank sector.

View the full story in Yonhap News.