Seven tril.won in public fund to be pumped into six nonviable banks

The government will inject a total of 7 trillion won (about US$5.9 billion) in public funds this year in nonviable banks such as Hanvit, Peace, Kwangju, Cheju, Kyongnam and Seoul. These ailing banks will decrease their capital, depending on the size of their debts.

These plans were contained in the blueprint for the second phase of financial sector restructuring announced by the Financial Supervisory Commission (FSC) Wednesday. The FSC said that the public funds would be poured into nonviable banks on two or more occasions in order to help raise their BIS (Bank of International Settlements) capital adequacy ratios.

Ahead of using the public funds to help the six banks survive, the government will sign memoranda of understanding (MOU) on whether they have completed restructuring steps such as reducing manpower and downsizing their organizations, said an FSC spokesman.

Depending on the results of the checks, the FSC would reconsider injecting the public funds in those banks found to have fallen short of expectations and take punitive measures against those responsible for poor management, the spokesman said.

Chung Kun-Yong, vice chairman of the FSC, said the government would set up a financial holding company led by Hanvit Bank under which the nonviable banks would be placed. The banks placed under the holding company would be officially inaugurated on Oct. 1 next year.

The FSC will induce healthy banks, including Cho Hung and Korea Exchange banks, to transform themselves into big banks through mergers or the formation of private financial holding companies.

Lee Hoon dreamland@donga.com