Seoul, July 10: Seeking to avoid a repeat of the fiasco that led to the Hanbo loans-for-kickbacks scandal earlier this year, the Central Bank of Korea on Thursday announced tighter lending caps on big business groups.

The central bank said that from August 1, it would limit lending by an individual bank to a single industrial group to 45 per cent of the bank's net worth.

South Korea now controls the aggregate of loans to the top 10 industrial conglomerates, which analysts said had allowed second-tier conglomerates to borrow extraordinarily large sums.

The central bank openly acknowledged that its move to tighten lending limits on big business groups was linked to the January collapse of Hanbo Steel Co, the nation's second-largest steel-maker.

The failure of Hanbo Steel, declared insolvent after racking up some $5.8 billion in debt, uncovered a web of corruption involving top bankers and politicians and raised concerns about South Korea's inadequate credit analysis practices.

Unnerved by the scandal, the country's financial markets still have not completely recovered.

"The new system is aimed at more efficiently monitoring and controlling loans to industrial groups," a manager at the central bank's credit supervisory department Seomun Yong-chae said.

Conglomerates with loans above the limits would have three years to comply, although the Office of Bank Supervision would have the authority to approve exceptions.

The new curbs would apply to loans and payment guarantees on won-denominated debts, the bank said in a statement.

Analysts were lukewarm about the central bank's plan. They said the new rules would change the system but did not address the every-day practices that have prevailed in South Korea's financial industry.

"The new system seems to focus on cutting banks' dependence on specific groups," head of research at the Seoul branch of ING-Barings Securities Lee Keun-mo said.

"But all systems have loopholes of their own, I don'T expect too much."Seomun said the central bank also sought to reduce banks' dependence on individual big borrowers.

Hanbo's collapse dealt a serious blow to Korea First Bank, the steel-maker's main creditor, he said.

At the end of 1996, Hanbo's parent Hanbo Group had loans and payment guarantees from Korea First equivalent to 93.5 per cent of the bank's net worth, the central bank statement said.

The statement said the fourth-largest Daewoo Group had loans and payment guarantees from Korea Exchange Bank equivalent to 53.6 per cent of that bank's net worth.But analysts said those groups having loans above the limits would have little difficulty complying with the new limits because they would be able to easily find other banks from which to borrow.

"I don't expect a major change in lending practices unless the concept of responsible management is introduced," an analyst at the Seoul branch of Nomura Securities Kim Jin-sang said.

Individual ownership in commercial banks is currently limited to four per cent, and recent proposals by a presidential commission to raise the ceiling have been rejected by the finance ministry.Analysts blamed strict ownership controls for the lack of responsible management at banks.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.