South Korean banks plan to start evaluating credit risks of big corporate borrowers from April as part of their efforts to weed out ailing companies,sources said Sunday.
More than 2,000 companies which owe 50 billion won (US$44.9 million) or more to financial firms will be subject to the stress tests that will focus on their business performances and cash flows, according to the sources.
Last year, creditor banks assessed the creditworthiness of 1,985 local companies as part of their corporate restructuring drive.
"After concluding the tests, banks will be able to push to restructure highly indebted companies in May and June if parliament reenacts a related law during its emergency sitting scheduled for April," an official at the Financial Services Commission (FSC) said.
The country's law on the promotion of corporate
restructuring expired at the end of last year. There has been a growing call to reenact it in order to prevent corporate bankruptcies from hurting the financial sector and the overall
economy.
Based on the results of the tests, creditor banks will sort out financially troubled companies by June and put them under a debt-workout program or court receivership, the FSC official said.
Last year, South Korean creditor banks conducted revamps of 65 troubled companies, including three shipbuilding companies and one shipping firm.
The restructuring drive came as financially troubled companies were under fire for dragging their feet in overhauling themselves, believing they could survive with the passage of time.