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South Korean regulators agree to boost policy banks' capital base

The Bank ofKorea and the country's Finance Ministry approved proposals toincrease the capital base of Korea Development Bank and as part ofefforts to restructure the shipping and shipbuilding industries, The Korea Herald reported May 4.

In a meeting held the same day, officials agreed to use a mixof policies in order to carry out the restructuring appropriately, thenewspaper said, citing the Finance Ministry. The authorities did not providedetails on how they will proceed with the capital raising for the banks, butaim to come up with a plan before the end of the first half.

Officials of the Financial Services Commission, KoreaDevelopment Bank and Export-Import Bank of Korea also attended the meeting.

Industry observers believe South Korea will need to raisearound 5 trillion won to 10 trillion won to strengthen the policy banks'capital buffers. Among options that are being considered is for the centralbank to invest in bonds of Korea Development Bank and Export-Import Bank ofKorea.

As for the banks, analysts expect they will need to setaside 9 trillion won in provisions against bad debt from shipping andshipbuilding companies.

Meanwhile, FSC Chairman Yim Jong-yong said the two policybanks should take responsibility for the cost of the restructuring and thatthey should come up with their own plans. He noted that Korea Development Bankis the owner of Daewoo Shipbuilding and should take responsibility for itsfinancial distress.

As of May 3, US$1 wasequivalent to 1,148.50 South Korean won.