On November 3, 2000, Hanvit Bank and 20 other creditor banks announced the results of their credit risk assessments of 287 potentially non-viable corporations. Based on these evaluations, companies deemed viable will be eligible for additional financial support while those deemed non-viable may face immediate liquidation.
The 21 creditor banks conducted credit risk assessments of the 287 potentially non-viable corporations, which include those with over 50 billion won in outstanding extended credits, from October 5, 2000 to November 3, 2000. The assessments considered industrial risk, operational risk and financial risk, and each creditor bank established its own assessment criteria and Credit Risk Assessment Committee (CRAC) to conduct the evaluation. Each CRAC was comprised of around 10 members, and included outside experts to ensure the fairness and objectivity of the assessment. The Credit Risk Assessment Coordination Group, which was made up of representatives from each of the creditor banks, mediated discrepancies that arose among the banks and made a final decision on the viability of concerned corporations.
According to the results of the credit risk assessments, creditor banks will prepare detailed financial support programs for the 69 companies assessed as having structural problems but deemed viable with additional financial aid from their respective creditor banks.
However, if a company that was previously classified as a normal or viable company in the credit risk assessment faces a new liquidity crisis, creditor banks must take responsibility for their failure to properly assess the company’s viability and exposure to risk.
With their announcement of the results of credit risk assessments of potentially non-viable companies, creditor banks expect to strengthen the transparency and stability of financial markets, and to regain investor confidence. Looking ahead, the creditor banks will assess the credit risks of their respective client companies on a quarterly basis and continuously resolve insolvent companies.
Regarding Hyundai Engineering & Construction Co., Ssangyong Cement Industrial Co. and Dongah Construction Co. (which has already applied for court receivership), creditor banks will request the companies to be placed into court receivership if they are deemed unable to regain viability through self-rehabilitation efforts. Creditor banks will base their decisions strictly upon market principles and in consideration of ensuring market stability and investor confidence.
Based on the assessment results for Hyundai Engineering & Construction and Sssangyong Cement Industrial Co., creditor banks will not inject new capital into the two companies and will apply for court receivership immediately in the case that either company faces a renewed liquidity crisis. Creditor banks will extend the maturity of loans coming due during the period of rescue plan implementation.
Follow-up
In recognition of the potentially negative impacts that the announcement of the results of credit risk assessments may have on financial markets, industrial relations, and overseas business, the Korean Government has formed a special task force team charged with facilitating smooth incorporation of the assessments into the ongoing process of corporate sector restructuring.
Established on November 2, 2000, the task force team, which will support corporate sector restructuring, is comprised of representatives from the Ministry of Finance and Economy, the Ministry of Construction and Transportation, the Ministry of Labor, the Financial Supervisory Commission, and the Bank of Korea.
On November 3, 2000, the FSS established a separate task force team to monitor financial market stability and take necessary actions to prevent the recurrence of a credit crunch. In addition, each creditor bank is expected to form their own task force team to deal with financial issues relating to Small and Medium Enterprise (SMEs) in the near future.
* Please refer to the attached PDF for details.