South Korea

Credit card companies’ aggressive push for asset growth through loan services is feared to pose a threat to the nation’s already-high household debt, The Korea Times reported in a commentary. Given that a significant portion of the fast-rising amount of loans may go sour, the financial authorities fear that they will add to already-mounting household debts. According to the Bank of Korea (BOK), the problem can no longer be ignored as household debt surpassed 800 trillion won for the first time in the first quarter. It rose 6 trillion won from the previous quarter.

The next couple of months will be crucial for the future of troubled savings banks, The Korea Times reported. One problem after another has beset the sector and jeopardized the entire financial industry. But there is little guarantee that all the problems have been exposed. Chances are that there may be more and, if this proves true, it is likely that they will surface by August. The impact may renew the sense of crisis within the financial sector, depending on the seriousness of any problems that are uncovered.

The Bank of Korea will weigh an interest-rate increase tomorrow as swelling household debt and weakness in the global economy pose threats to growth, Bloomberg reported. Nine of 17 economists expect the benchmark rate will stay unchanged at 3 percent, while eight forecast an increase of a quarter of a percentage point, a Bloomberg News survey shows. Officials must decide whether protecting the nation’s expansion is more important than taming inflation that’s exceeded a 4 percent target ceiling each month this year.

Korea Asset Management Corp. (KAMCO), the state-run debt clearer, is close to determining salvageable loans from its massive pile of distressed real-estate assets it has acquired from secondary banks in past years, company chairman Chang Young-chul said here Wednesday, The Korea Times reported. The toxic assets will be sent back to the lenders, which could further contaminate their financial health. Between 2008 and 2010, KAMCO had bought a combined 6.2 trillion won (about $5.8 billion) worth of construction project loans from savings banks.

The government announced a package of measures designed to stimulate the housing market by helping first-time buyers and property investors, which included creating a bad bank to soak up soured construction loans, The Korea Times reported. Reducing transfer taxes for homeowners in Seoul and the metropolitan area and extending tax incentives for real estate investment trusts (REITs) and funds that buy unsold properties were also part of the plan unveiled Sunday.

With the property market becoming toxic, government officials are considering forcing big commercial banks to create and finance a new firm that would purchase soured construction loans, The Korea Times reported. But it’s debatable whether the so-called ``bad’’ bank would be enough to defuse the risks to financial stability posed by the decaying construction and real-estate market when a recovery seems unlikely in the foreseeable future.

With a series of Korean construction firms turning to court receivership to delay debt repayment, there is growing criticism that they are using the courts to find an easy way out of paying debts. Some accuse the construction companies of engaging in brinkmanship, the JoongAng Daily reported. Banks are blaming the builders for a lack of financial discipline, while the construction companies say the commercial and savings banks are forcing them into financial trouble by refusing to roll over loans.

In another blow to creditors, Dongyang Engineering and Construction Corp. filed for court receivership at Seoul Central District Court yesterday, underscoring the debt problems created by construction-related financing loans, the JoongAng Daily reported. The midsize builder cooperated with Sambu Construction, which also recently filed for court receivership, in building luxury villas in Naegok-dong, southern Seoul. “I can’t believe how entangled the situation is,” said a Financial Supervisory Service official.

South Korea's central bank left interest rates unchanged as expected Tuesday, opting to take stock after inflation pressures showed signs of moderating in March, but hinted afterward that it's likely to resume tightening in the coming months, The Wall Street Journal reported. The vote to keep the base rate steady at 3% was not unanimous, said Bank of Korea Governor Kim Choong-soo at a media briefing. He added that the central bank is "very determined" to keep normalizing its policy rate.

Takefuji Corp. said Monday that it has granted South Korean consumer lender A&P Financial Co. preferential negotiating rights to take over the failed Japanese consumer lender in what would be one of the biggest acquisitions by a South Korean firm of a Japanese company, but the unexpected development is leading bondholders and a rival bidder to question the way the lender's court administrators have handled the sale process, The Wall Street Journal reported.