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Crisis
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2004-01-14 18:39:32-05
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Credit Crisis Grips Korea
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LG Card to replace top executives as looming plastic crisis comes to a head in South Korea
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In what could be an ominous trend in Asia, slightly reminiscent of the 1997-98 financial crisis, the ?plastic? crunch is gripping South Korea. Liberal credit card rules backed by government policies, have played a role in stimulating the domestic demand in such Asian countries as South Korea and Thailand. In South Korea, at least, the government must now pick up the pieces at LG Card. LG Card is the credit card arm of the LG conglomerate, which most consumers are familiar with as a consumer electronics producer. State-run Korea Development Bank (KDB) is taking the lead role in a US$4.5 billion rescue of debt-laden LG Card and intends to replace its top management. Sixteen lenders to LG Card gave their written support to LG Card on Friday, thus averting the country?s biggest credit card firm bankruptcy and forestalling an even wider financial crisis. Creditors will convert 3.65 trillion won (US$3.09 billion) in debt owed by LG Card into equity within one year. This figure includes a new 1.65 trillion won loan to be provided in the immediate future. A spokesman for KDB said the state bank would write down its capital after the planned debt-for-equity swap within one year. After stabilizing LG Card?s operations, the state-run lender will sell the credit card issuer to a third party in an auction to a domestic or foreign buyer. The immediate impact of the LG bailout was to boost share prices in banks and LG affiliates. LG Card resumed cash advance services after a two-day halt, after creditors provided 800 billion won in emergency loans from four banks. The South Korean government has been trying to keep LG Card?s problems from destabilizing the country?s financial system. One-third of South Koreans are LG customers. It is estimated that one of 10 South Koreans above the age of 15 is unable to repay their debt.
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