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Wed, Dec 24, 2003 - Page 12 News List

Embattled South Korean credit firm suspends services


South Korea's third largest credit company, KEB Credit Service, suspended most of its short-term cash loans for a second day yesterday, fueling concerns over the country's shaky credit card industry.

KEB Credit Service, which is to be merged into its parent company, Korea Exchange Bank (KEB) on Feb. 28, stopped most of its cash advances, saying its cash reserves were running dry.

The suspension came after the KEB Credit Service's union launched a partial strike on Dec. 15, demanding the withdrawal of the merger plan, which it said will lead to massive lay-offs.

Korea Exchange Bank, the country's sixth-largest lender which was taken over by US investment fund Lone Star in October, said it was unable to come to the rescue of the credit card unit, citing regulations on financial ties with units.

Analysts said the suspension of the cash loan service indirectly puts pressure on the labor union over its strike action.

"It is hard to believe that KEB Credit Service suspended cash advances because of liquidity problems," said Kim Uk-Rae, an analyst with Sejong Securities Co said.

Kim and other analysts also said KEB could have easily secured official clearance to extend help to the credit card unit beyond the 10-percent limit as it is to take over KEB Credit Service.

KEB Credit Service provides an estimated 35 billion won (US$29 million) of cash advances every day.

"By cutting down on cash loans, KEB Credit Service is shifting the onus to other credit card firms," Kim said.

South Korea has 3.6 million credit card users who have defaulted on their card loans. With total assets at 5.8 trillion won (US$4.9 billion), KEB Credit Service has 7.5 million clients. Its net loss for the first nine months to September stood at 411 billion won (US$345 million).

The ratio of overdue payments at the card company rose from 8.1 percent in September to 8.8 percent in October, according to KEB Credit.

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