Souring loans close to boiling point

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Souring loans close to boiling point

Half of project-financing loans for real estate extended by Korean savings banks have a high risk of defaulting, aggravating concern about the state of the already ailing industry, data showed yesterday.

Combined outstanding project-financing loans by local savings banks reached 3.11 trillion won ($2.79 billion) at the end of June, according to data by the Financial Supervisory Service that was submitted for parliamentary inspection.

Of the figure, 1.62 trillion won, or 52.1 percent, has been classified as sour debt as the lenders are unlikely to retrieve either the interest or principal.

The FSS said another 31.8 percent is borderline bad debt. Only 16 percent was labeled as sound, it added.

Some 1.32 trillion won worth of project financing loans are due to mature by the end of this year, while 1.13 trillion won was due as of June, the FSS said.

The data come on the heels of grim earnings reports by domestic savings banks. Of the 93 in the country, over 40 saw their net losses nearly triple in fiscal 2011 from a year earlier. The financial regulator suspended the operations of 20 of them last year citing poor capital bases.

The surge in losses is largely attributed to their excessive lending to construction firms for property financing.

As the real estate market remains mired in a protracted slump, troubled real estate loans began to pile up, deteriorating the financial health of the savings banks.

The delinquency rate for project financing loans shot up to 41.1 percent as of December from 9.1 percent back in 2005, data showed.

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