Warning sounded on South Korean bad loans

South Korea's regulator has warned banks they have to act quickly to rein in bad loans as ratio hits four-year high.

Rising to an average 1.50 percent of domestic banks' total credit as of mid-year, bad loans registered at the highest level since reaching 1.65 percent in the same period in 2005. Mainly due to unpaid corporate loans and credit card receivables, problem loans for 2Q 2009 increased by $6.2 billion for South Korean banks, according to a Reuters report.

Choo Kyung-ho, a director general of the Financial Services Commission (FSC), said, "In August, the Financial Supervisory Service (FSS) will discuss and set targets with each bank and examine their achievements going forward." FSC added that Kookmin and five other banks are preparing to set up a private bad bank in September to compete with Korea Asset Management Corp in buying their non-performing loans. The total investment is pegged at approximately $1.2 billion.

South Korean banks have cleaned up a total of $2.7 billion worth of bad loans at the end of the second quarter, more than half of the amount they disposed of through write-offs and sales in the previous year.