by Yoo Seungki
SEOUL, May 16 (Xinhua) -- South Korea's financial watchdog said in early May that it will establish a bad bank, a special entity to purchase soured loans owed by builders and property developers.
The Project Financing Stabilization Bank (PFSB), often called bad bank, will take on as much as 1 trillion won (922 million U.S. dollars) worth of non-performing project financing loans starting June, according to the Financial Services Commission.(FSC).
The bad bank aims to restructure and stabilize the ailing builder loan market by pooling together soured loans taken out from real estate development projects and simplifying the valuation.
The PFSB will have a form of private equity fund (PEF), which will be operated under the United Asset Management Company (UAMCO), the formerly established private debt clearer funded by a group of commercial banks to purchase non-performing loans. Local lenders, which want to sell off their project financing loans, can participate in the PEF as limited partners.
Participating banks will fund the purchase of insolvent real estate loans according to their individual sell-off size, and the bad bank will raise additional funds necessary to stabilize and revitalize the troubled property development projects. Eight local banks are reportedly considering their participation in the debt restructuring program.