Slow response to crisisThe government is applying various policies to counter the economic crisis, but the market remains unstable and the credit crunch has not been resolved.
From the outside, local banks look sound. The BIS capital adequacy ratio at the end of last year exceeded 12 percent. However on the inside, it’s clear banks are struggling. The late payment rate at local banks, which was 1.7 percent at the end of last year, rose to 2.36 percent in just one month. We’re starting to see a vicious cycle of banks reducing loans, companies going bankrupt because of lack of liquidity and toxic loans piling up.
But Korea is acting too slowly.
In the United States, the government, regardless of banks’ BIS capital adequacy ratio, has already bailed out financial companies to the tune of $300 billion. Europe is spending over 100 billion euros ($128.98 billion) rescuing banks and Japan is working on a package for its financial sector worth 12 trillion yen ($130.48 billion).
By current law, the public bailout fund should be given to insolvent banks with a BIS capital adequacy ratio below 8 percent. Unlike other foreign countries, a pre-emptive and preventive bailout has been blocked. Additionally, the regulation that separates the financial industry from non-financial companies is holding back early moves against the economic crisis.
There is no greater joy than solving a crisis without government intervention. But warning signs are flashing. Some of the banks posted huge losses in the fourth quarter of last year.
Meanwhile, Moody’s, the international credit rating agency, has lowered its rating for 10 local banks, and the situation will certainly deteriorate as the economy heads toward negative growth.
One silver lining is at least Finance Minister Yoon Jeung-hyun on his first day at work said he would provide a legal and systematic foundation where money would be injected pre-emptively if the situation calls for such a move.
Unless banks get back to working normally, we won’t be able to overcome this economic crisis. It’s imperative that the special session of the National Assembly looks for ways to provide pre-emptive bailout funds and ease regulations separating the financial and non-financial sectors.
U.S. President Barack Obama two weeks ago asked Congress to stop playing political games and stressed the need to act. Likewise, this is not the time for the National Assembly to play politics with the financial crisis.