As of end-June 2000, the total amount of loans classified as “ substandard” and below at all domestic financial institutions stood at 82.5 trillion won, which represent s a decrease of 7.9 trillion won from 90.4 trillion won recorded as of end-March 2000.

Net substandard and below loans, which are substandard and below loans minus loan loss provisions, also fell to 44.0 trillion won. Accordingly, the ratio of substandard and below to total loans was reduced to 13.6 percent, which is down 1.7 percentage points from end-March 2000. Non-performing loans totaled some 60.9 trillion won, down 3.2 trillion won from end-March 2000, and accounted for 10 percent of total loans.

At banks, merchant banks, and merchant banking accounts in securities firms, the loans graded as substandard or below include those classified as “ Substandard” , “ Doubtful” , and “ Estimated Loss” according to the Forward Looking Criteria (FLC), which reflect all potential losses in the loans. For other financial institutions, substandard and below loans refer to non-performing loans, which includes all loans overdue for more than three months and non-accrual loans.

Continuing sales and write-offs of bad loans were the main reasons for the decrease. During the period, domestic financial institutions disposed of 3.3 trillion won worth of bad loans through issuance of asset backed securities (ABS). In addition, they also had 3.3 trillion won worth of bad loans written off.

Banks accounted for 56.5 trillion won, or 68.5 percent, of total substandard and below loans in the domestic financial sector. Non-bank financial institutions followed with 16.5 trillion won, or 20.0 percent. Insurance companies and securities firms accounted for 5.4 trillion won and 4.1 trillion won, respectively.

As noted, substandard and below loans in the domestic financial sector were down as of end-June 2000 from end-March 2000. The greatest reduction in bad loans, however, was seen in the banking sector. Overall, banks decreased their substandard and below loans by 7.6 trillion won, accounting for the largest portion of the reduction in substandard and below loans in the entire financial sector. Insurance companies and non-bank financial institutions lowered their bad loans by 0.1 trillion won and 0.3 trillion won, respectively. However, substandard and below loans in merchant banks and securities firms slightly increased due to the introduction of FLC in June 2000. As a result, merchant banks and securities firms saw their bad loans increase slightly by 0.6 trillion won and 0.1 trillion won, respectively.

* Please refer to the attached PDF for details.