Creditor banks' evaluation committee to be introduced

An evaluation committee has been put into operation by creditor banks that will be responsible for deciding which of the 20-30 companies under workout programs to close down.

21 financial institutions, including commercial banks, held a meeting at the KFB building, where a decision was made to establish a credit risk evaluation committee.

More than 75% of the creditor institutions participating in the evaluation committee have to agree on the closure of a company.

A decision will be made by the end of this month on which companies will be closed down and an official announcement will made sometime in early November.

Each bank has already reported to the Financial Supervisory Commission their classification of companies with assets of more than 50 billion won that have credit ratings of 7 or lower and have had interest payment ratios of lower than 1 for the last 3 years. The classifications include normal, temporary liquidity problem, structural liquidity problem and court protection/mediation.

The FSC will consolidate the reports submitted by each bank and for companies that have received differing judgments regarding their closure, the major creditor bank will be notified of the fact. The major creditor bank will bring together creditors and set up a credit risk evaluation committee. Financial institutions with debt holdings of 5 billion won or more will be included in the committee.

The committee will have to reclassify these companies into normal, companies experiencing temporary liquidity crises needing new funds, companies with structural liquidity problems needing debt-equity conversions and firms in court protection/mediation or slated for closure.

For each decision to be binding, 75% of the committee members have to be in agreement. Hence, one cannot eliminate the possibility of Hyundai Engineering and Construction receiving 75% of the vote for the provision of new funds or debt-equity conversion.

An official from Hanvit, which is the head arranger, revealed that the evaluation criteria cannot be uniform as there are company and industry characteristics to consider and very few companies need the establishment of a credit risk evaluation committee. Most of them are well known and have been dealt with by the press.

Once a credit risk evaluation committee is set up, the financial institutions participating in the committee cannot demand repayment and debt maturities are automatically extended until a decision is made.

The committee remarked that decisions would be made expeditiously before the repayment demands by non-banking institutions become full-scale.

Hanvit Bank, which has the most companies to evaluate, revealed that among the 162 companies slated for evaluation, around 10-15% will be either in the court protection/mediation closure or the structural liquidity problem category.