Why are Korean banks still on negative watch?

Kookmin Bank and six other South Korean financial firms had their ratings affirmed by Standard & Poor's as the ratings company removed them from its watch list following a government aid package for lenders.

The outlooks for Kookmin, Woori Bank, Shinhan Bank and Hana Bank -- the nation's four biggest lenders -- were still “negative” on concerns of “defaults by relatively small and midsize enterprises and construction companies,” S&P said in a statement. Woori's parent Woori Finance Holdings and Shinhan' credit card affiliate were also given “negative” outlooks.

The South Korean government pledged on Oct. 19 to provide $130 billion as a state guarantee to cover lenders' overseas debts due by mid-2009. Banks were also given access to $30 billion of dollars from the country's foreign-currency reserves. Korean banks have suffered from a liquidity crunch and pressure financing overseas debt amid the global credit crisis.

The aid package, which came after S&P placed seven financial firms on CreditWatch with negative implication, received parliamentary approval.
The state package “has largely mitigated concerns regarding the Korean banks' foreign currency liquidity risk,” S&P said. The six companies' outlooks could be revised to “stable” if they could overcome the risk of rising loan defaults “without significantly undermining their capitalization and asset quality measures,” it said.
Korea Exchange Bank, also removed from S&P's CreditWatch, was given a “stable” outlook.


How do Korean banks plan to secure more assets amid rising loan defaults risks?