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Corporate restructuring to have little impact on banks: bank association chief

The chief of the Korean banks' association said on Wednesday that the ongoing industrial restructuring will have little impact on local commercial banks, citing their minor exposure to financially troubled companies.

In a press conference held in Germany on the sidelines of the 49th Asia Development Bank annual meeting which ends on May 5 (local time), Korea Federation of Banks (KFB) Chairman Ha Yung-ku said, "In the past, commercial banks carried a bigger exposure ratio of 60 percent to companies under restructuring compared to the 40 percent for state-run banks. But today, state banks are heavily exposed to major debt-ridden firms."

Korea Federation of Banks (KFB) Chairman Ha Yung-ku (Yonhap)
Korea Federation of Banks (KFB) Chairman Ha Yung-ku (Yonhap)

State banks accounted for nearly 90 percent of overall exposure to shipping and shipbuilding companies already under a creditor-led debt revamp program or about to take a similar course due to worsening financial woes, the KFB said.

State lenders such as the Export-Import Bank of Korea and Korea Development Bank have reportedly extended more than 21 trillion won ($18.2 billion) in loans to cash-strapped shipping lines and shipbuilders.

The chairman also said a performance-based salary system should be adopted in the banking industry for long-term survival.

"Given the current (low) profitability and (high) salary system at banks, local lenders badly need to make their salary and employment systems flexible," said the veteran banker who served as chief of Citibank Korea from 2004-2014.

As for local banks' request that the Bank of Korea lower the reserve ratio, he said the demand for money has fallen sharply due to deteriorating economic conditions compared to 2006 when the ratio was raised. The request was made during a meeting between heads of local banks and BOK Governor Lee Ju-yeol late last month and no developments have been made yet, the KFB said. 

Local lenders are currently required to put 7 percent of deposits in reserve after the ratio was lifted from 5 percent in 2006. (Yonhap)