Banks` Financial Health, 71st Rank Among 77 Countries

The financial state of the domestic banks ranked 71st among 77 countries as of the end of 2000, according to the evaluation of Moody`s Investors Service Inc.

The ratio of the local banks` non-performing loans to total lending recorded 6.6 percent, much higher than the US (1.16 percent), Germany (1.3 percent), and Japan (4.54 percent).

Choi Hee-Gap, a senior researcher of the Samsung Economic Research Institute (SERI), released the report, titled ``The present condition and the task on the competitiveness of the financial industry: banks.`` This report suggested that even though the public funds of 80 trillion 700 billion won had been provided, the domestic banks` health remained very poor, and thus there will be more demands on the public fund in the future.

The report declared that while only four banks-Kookmin, Housing and Commercial, Korea First, Shinhan-ranked in the seventh place on a 9-grade scale, the remaining banks were placed at the bottom as of January this year, according to the result of the research about the banks` financial soundness by the Moody`s.

And the average credit grade of the Korean banks was Ba2-Ba3, ranked 52nd among 77 countries.

The ratio of the domestic banks` non-performing loans to total lending recorded 6.6 percent, higher than the branches of the foreign banks in Korea as well as the banks of the US and Germany.

The report pointed out that although the staffs of the banks have decreased 38.1 percent, from 113,994 in 1997 to 70,559 in 2000, and the number of branch have fallen by 21.3 percent, from 5987 to 4709 during the same period, the return on assets (ROA) has recorded minus figures for past four years, largely due to the insolvent bonds.

The ROA recorded an average of minus 0.15 percent during the 1990-1999 period, way below 0.66 percent, which is the average of the member countries of the Organization for Economic Cooperation and Development (OECD).

The report finally emphasized that `` In order to survive, the domestic banks must maintain the ROA in the 1.2-1.7 percent level, and the return on equity (ROE) in the 16.21 percent level at least in the coming 3-5 years. And the banks should apply the principles to the insolvent conglomerates and the `work-out` companies, and should raise the profitability by introducing the realistic interest rate on loans and various service fees.``

hcs@donga.com