But analysts say the good news for the banking sector andthe Korean economy in the long run is that the process will speed up necessary reform and restructuring that leaves the remaining banks leaner, meaner and more efficient.

"Daewoo was a bomb that was waiting to explode," said MokYoung-choong, a Financial analyst at ING-Baring Securities.

"It's good the bomb exploded. The banks can now focus onimproving their balance sheets and becoming more transparent."

Kim Byong-sok, senior analyst at Hannuri InvestmentSecurities, said: "The workout of Daewoo Group could end up speeding up the restructuring of banks by forcing some banks with heavy exposure to Daewoo to shut down."

Analysts said that after the workout not all major SouthKorean banks would necessarily meet the required eight percent capital adequacy ratio under Bank for International Settlements (BIS) standards next year.

"We may have a second round of banking restructuring nextyear after the April parliamentary election," Kim said.

South Korea underwent a first round of restructuring lastyear with a series of closures and mergers.

That was in line with agreements with the InternationalMonetary Fund in exchange for a $58.35 billion rescue package after South Korea was hit by the regional Financial crisis.

Analysts warned that this year banks' balance sheets woulddive deeper into the red in the fourth quarter in an effort to meet huge provisioning requirements for bad Daewoo debt.

The Daewoo Group, whose book value assets of 76 trillionwon ($64 billion) are comparable to an emerging market, has debts of 61.8 trillion won, half of it owed to local banks.

Domestic creditors put the 12 core Daewoo affiliates undera debt rescheduling programme in August after rescuing the group, the country's second largest conglomerate, from bankruptcy.

In the last leg of finalising their restructuring plans,creditors chose to convert some $25 billion dollars of debt in Daewoo's four biggest companies into equity - the biggest such swap in Korean history - to take ownership control of the crumbling empire.