Seoul, Feb 23: South Korea said on Monday it would order several merchant banks to close this week, a move which analysts say signals a tough government approach to restructuring the troubled financial industry.The finance ministry said it would announce on Wednesday more merchant banks to be closed down based on a special assessment of the financial status of 20 banks.
The ministry revoked the business licences of 10 failed merchant banks earlier this month after deciding their business normalisation plans were inadequate.
The 10 banks were among 14 whose business was suspended in late December. It was not clear whether the remaining four would also be ordered to close.But analysts said up to five merchant banks including the suspended four -- Nara Banking Corp, Daehan Investment Banking Corp, Hansol Merchant Bank and Central Banking Corp -- were expected to be marked for closure this time.
Failures of financial firms, something almost unthinkable in South Korea before the recent crisis, have nowbecome a painful reality.
Analysts said six to eight merchant banks would be able to survive through to the end of next year by meeting financial adequacy targets they had already submitted.
"All the merchant banks submitted ambitious plans to improve their financial adequacy ratios, but many of them will not be able to implement the plans," said Mok Young-chung, a banking analyst at ING-Baring Securities.
The government has said merchant banks must improve their risk-weighted debt-to-asset ratio to more than four per cent by the end of March this year, six per cent by the end of June and eight per cent by the end of June next year.
Meanwhile, Daehan Investment said on Monday its board of directors had approved a plan to buy a 44 per cent stake in a Seoul-based securities firm currently held by Hong Kong's bankrupt Peregrine Investments Holdings Ltd.
A Daehan official said the move, to be concluded before October next year, was part of its self-rescue plan submitted to the government.
"The boardof directors' approval showed our normalisation plan is progressing smoothly and we hope this will influence in one way or another the government's decision to be announced on Wednesday," said the official, who declined to be named.
The troubles of South Korean merchant banks were a major contributing cause to the country's financial crisis, which culminated in the government's acceptance of a record bail-out of nearly $60 billion put together by the International Monetary Fund.
Their plight began in the early days of Asia's financial turmoil as their emerging market portfolios turned sour and foreign credit lines dried up.
Last year's chain of South Korean corporate failures, which even hit the ranks of the top conglomerates, known as chaebol, has aggravated their troubles and sent them scramblingtofind local cash at exorbitant interest rates.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
