UPDATE 1-KAMCO to buy $890 bad loans from S.Korea thrifts

(Adds details from statement, share prices)

SEOUL, Dec 3 (Reuters) - State-run debt clearer Korea Asset Management Corp (KAMCO) will buy 1.3 trillion won ($888.6 million) worth of bad loans arising from mutual savings bank project financing, a top regulatory body said on Wednesday.

The Financial Services Commission (FSC) said in a statement that the country's 89 savings banks had lent a combined 12.2 trillion won via project financing as of end-June, and 55 percent of that was classified as normal loans.

"We will draw up a variety of support measures, including a purchase of project financing-related loans through KAMCO for 1.3 trillion won, as a condition of their increased efforts to rescue themselves," the commission said.

FSC expected the planned bad loan purchase to lower delinquency ratios at domestic thrifts, which could otherwise climb to as high as 19.1 percent, by up to 10.4 percentage points.

It did not say when the purchase would take place.

The new debt purchase may require the government to inject new capital into KAMCO.

The announcement lifted shares of sector-leader Solomon Mutual Savings Bank (007800.KS) by the daily limit of 15 percent at 0546 GMT, and Jinheung Mutual Savings Bank (007200.KS) also spiked up by the ceiling in the flat broader market .

Savings banks, which handle riskier loans for higher rates than commercial banks, had expanded assets mainly through lending to building projects, riding a boom in the construction market until last year.

But a cooling property market has chopped their collateral value and their financial problems in turn have led to the delay or cancellation of construction projects.

In part of a string of bailout steps, the government said last month that it would spend about $4 billion to buy unsold new homes and land from domestic builders who wanted to pay off debts.

Last week, a KAMCO official told Reuters that the state agency expected to spend 1 trillion won buying soured loans from both banks and mutual savings banks this year, the same as in 2007. [ID:nSEO161804]

KAMCO spent 40 trillion won buying bad assets with a combined face value of 110 trillion won from the local financial industry after the 1997-98 Asian financial crisis and has since recovered more than the principal it laid out.

($1=1463.0 Won)

(Reporting by Kim Yeon-hee; Editing by Jonathan Hopfner)