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Defaults rise to 13.5%
http://www.sina.com.cn 2003/12/31 13:40  Shanghai Daily

  Delinquencies at LG Card Co and seven other South Korean credit-card companies rose to a record 13.5 percent in November, the fifth straight monthly increase, because of poor risk management, the nation's regulator said.

  The ratio of overall card loans overdue by more than a month rose from 11.7 percent at the end of October to 7.7 trillion won (US$6.43 billion), the Financial Supervisory Service said in a statement, citing preliminary figures. The ratio was 8.9 percent on June 30.

  "Credit card companies cut their lending ceiling as financial woes deepened at LG Card and other credit card companies," the agency said. "As such, defaulters couldn't use different credit cards to pay their card bills."

  Credit card companies and other financial institutions have suffered from rising numbers of unpaid bills after record low interest rates and government efforts to encourage consumer spending sent household debt surging 30 percent last year. Central bank Governor Park Seung said earlier this month delinquencies at credit-card companies may peak in the fourth quarter.

  South Korean financial institutions had the worst bad-loan ratio in five years last month, the state-run regulator said in a separate statement, fueled by a surge in people who can't pay off their credit-card debts.

  Financial companies' loans on which interest had not been paid for more than three months and those that the Financial Supervisory Commission deems are unlikely to be repaid rose 1 trillion won to 4.2 percent of all lending in the third quarter from 4.1 percent of all credit in the second quarter.

  LG Card, South Korea's largest card issuer, is in the middle of a 5.15 trillion won bailout, which includes a 2 trillion won loan from Woori Bank, Hana Bank and six other lenders, that it received in November in order to remain in business.

  Three other card companies have merged or are being merged into their parent banks.

  "The problems will peak in the fourth quarter in terms of non-performing loans if the financial institutions sort out the debt problems at LG Card in a smooth manner," said Jung Kyun Sik, who manages the equivalent of US$209 million of equity funds at Shinhan Investment Trust Management Co in Seoul.

  Delinquencies at LG Card jumped to 14.7 percent to another record for the company, the regulator's statement said. It had 3.24 trillion won more debt than assets as of October 31. Korea Exchange Bank Credit Service Co's delinquency ratio rose to 11.1 percent from 8.8 percent.

  Woori Credit Card Co, which has suspended the refinancing of loans with longer terms to cash advance users since July, saw its ratio unchanged at 30.8 percent. The 22-month-old card company plans to write down 700 billion won of bad loans this month to clean up its balance sheet.




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