Korean banks losses to touch 9.4 bn

February 8: South Korea's surviving banks are this week likely to report billions of dollars in losses for 1998 but the worst is behind t...

February 8: South Korea8217;s surviving banks are this week likely to report billions of dollars in losses for 1998 but the worst is behind them, banking analysts said on Monday.

The 10 major commercial banks are forecast to report combined losses of between 11 trillion won 9.4 billion and 14 trillion won, compared with total losses of 2.8 trillion won in 1997. Annual results for the banking industry, which almost drowned in bad debt when the economy nosedived in late 1997, are due to be released on Tuesday by the Financial Supervisory Service.

quot;The crisis is over for South Korean banks, aided by government efforts to recapitalise them and to purchase bad debts,quot; said Jun Lee, an analyst at LG Securities.

Long-dormant problems in South Korea8217;s outdated financial system pushed the nation to the brink of default in 1997 and forced it to accept a record 58.35 billion package of bailout loans arranged by the International Monetary Fund. quot;Many Korean banks found themselves swimming in red ink as theeconomy has undergone serious restructuring,quot; said Lee Hyung-Jin, an analyst at Samsung Securities.

Clearing up the banking industry was one of the major reform tasks faced by the South Korean government last year. A finance ministry official said the government had spent 6.3 trillion won to recapitalise banks and 19.9 trillion won to buy bad loans from them.

Analysts said major commercial banks booked losses totalling about eight trillion won from the sale of bad loans last year. Tighter rules on loan-loss provisioning also hurt bottomlines, said analyst Kim Bongsok of Hannuri Investment Securities. quot;And banks must accept a mark-to-the-market system of their securities investment last year,quot; Kim said.

Hanvit Bank, which merged with Commercial Bank of Korea and Hanil Bank in the industry8217;s shakeout, is likely to report the biggest 1998 loss at 3.3 trillion won, analysts said.

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Nationalised Korea First Bank and Seoulbank are expected to follow with losses of 2.6 trillion won and 2.24 trillion wonrespectively. Housing and Commercial Bank is forecast to report a net loss of 45 billion won after its adoption of strict international accounting standards. But the banks see a profit of 340 billion won for this year.

Some healthier banks bucked the trend for 1998. Kookmin Bank likely to report the biggest net profit for 1998 of between 74 billion won and 78 billion won, followed by Shinhan Bank with 59 billion won.

Analysts said combined operating revenues by the major commercial banks were forecast to rise to 37 trillion won last year from 32 trillion won a year earlier, analysts said. quot;Most banks had enjoyed rising revenues from interest and non-interest sectors,quot; said analyst Mok Young-choong of ING Barings.

He said banks had taken advantage of a widening interest-rate spread and foreign exchange trading. Analysts said banks would have a better year in 1999, but it would take longer than a year for all of them to turn around.