Copyright 2000 The Korea Herald
THE KOREA HERALD
June
9, 2000, Friday
LENGTH:
451 words
HEADLINE:
Seoul provides funds for Korea Merchant Banking
BODY:
Sparked by rising concern over the latest flurry of liquidity crunches in the merchant banking industry, the government may step in by providing a relief package worth 188 billion won to ailing Korea Merchant Banking Corp. (KMBC), the Ministry of Finance and Economy said yesterday.
Among measures discussed included the option to acquire subordinates bonds issued by the merchant bank through state-run Korea Deposit Insurance Corp. (KDIC), which would mark the first such bailout extended by the government.
"The government is considering relieving KMBC's liquidity problems by acquiring 188 billion won in subordinated bonds through KDIC, among other options," said Uhm Rak-yong, Vice Minister of Finance and Economy.
As a result, Uhm said the government will work closely with majority shareholder Hana Bank - which agreed last week to provide 85 billion won in relief to KMBC and promised to double the figure if necessary - to resolve the ailing merchant bank's liquidity problems and subdue investor anxiety.
The merchant banking industry has suffered severe blows since early this year, with the
insolvency
of Nara Banking due to problems involving call loans worth 1.7 trillion won to the dismantled Daewoo Group.
In May, the Financial Supervisory Commission (FSC) suspended the operation of Yeungnam Merchant Banking as the company also plunged into
insolvency
due to a loan to Daewoo.
KMBC, despite being one of the three industry leaders, fell into a liquidity shortage stemming from its purchase of commercial notes worth some 180 billion won issued by Nara.
News it received 85 billion won of financial support from Hana Bank, which holds a 22.6 percent stake of KMBC, further aggravated the situation by sparking investor panic because it indicated the magnitude of the industry's problems.
Only nine players from the 30 before the 1997 economic crisis outbreak now remain in the merchant banking industry.
The amount of funds outstanding that merchant banks raised by issuing promissory notes fell 252 billion won in March, 326.5 billion won in April and 865.2 billion won in May. During the three months alone, a total of 1.44 trillion won had moved out of merchant banks, with an accelerating outflow pace.
Merchant banks also raise funds by selling cash management accounts (CMAs). But the funds amount put into these accounts also continued dropping. According to the data, a total of 413.3 billion won was withdrawn from these accounts during the three months since March.
As a result, market watchers are concerned that investors will continue pulling out funds from fear that a liquidity crisis in one merchant bank may spread to others in a domino effect. (CYS)