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Banks Find Way To Rate Debtors' Survival Chances

May 02,2001
Domestic banks have decided on ways to coordinate differences among themselves over how to rate a troubled corporate borrower's credit.

The agreement is intended to deal with the conflicting interests local creditor banks are likely to have when they select companies to be liquidated as part of the country's corporate restructuring efforts, a local banker said Monday on condition of anonymity.

Under the agreement, a main creditor will rate an ailing borrower's credit. If any other lender disagrees with the rating, banks will get together twice to adjust it. If no agreement is reached during the process, lenders will choose the lowest rating from those suggested by each bank, and the rating will be used as the yardstick to decide on a company's viability.

"Usually, companies have businesses with several banks, who have different interests," said the banker. "Even if a company is put on a list of firms that show signs of collapsing, there would be quite big differences among creditors when they sort out those to be liquidated."

Twenty-two domestic banks plan this week to blacklist companies with high risks of going bankrupt, before declaring which are to be closed.

by Chung Sun-gu




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