UPDATE 1-South Korea may inject public funds into more banks

(Adds capital ratio data, background)

SEOUL, Feb 23 (Reuters) - South Korea may revise legislation to allow the injection of public funds into banks with capital ratios above the current limit for lenders receiving government money, the country’s top regulator said on Monday.

The remarks by Chin Dong-soo, the chairman of the Financial Services Commission, marked the first time a senior government official acknowledged market speculation that domestic banks, led by Kookmin and Shinhan, may need to resort to public funds.

Under the current law, public funds can be pumped only into banks with capital ratios below 8 percent, meaning no South Korean lenders are currently eligible after many were bailed out with taxpayers’ money following the Asian financial crisis a decade ago.

“Based on the financial capability of local financial institutions, it is not time to mobilise public funds like other countries,” Chin told a parliament policy committee.

“(But) we will consider revising the law to give legal authority to what we may do when the situation deteriorates.”

The average capital ratio for South Korean banks climbed to 12.19 percent at the end of 2008, recovering from a 7-1/2-year low hit three months before, regulatory data showed.

The rebound was helped by capital increases worth a combined 16.2 trillion won ($10.89 billion) during the last quarter of 2008.

Shinhan Bank, a unit of Shinhan Financial Group 055550.KS, posted the highest ratio of 13.42 percent among the country's banks.

The ratios for SC First Bank, the local banking arm of Standard Chartered STAN.L2888.HK, and Woori Bank fell below the advised level of 12 percent. Woori is the country's No. 2 lender by assets and part of Woori Finance Holdings 053000.KS.

Analysts said broad-based corporate restructuring, orchestrated by the government, and the weakening won KRW= would continue to undermine banks' assets.

“Regulators will guide banks to keep an appropriate level of capital via use of a recapitalisation fund, share issues and an increase in retained earnings,” a statement from the Financial Supervisory Service (FSS) said.

The Financial Services Commission, which supervises the FSS, said in a policy report on Monday a 20 trillion won bank recapitalisation fund set to be launched soon would start injecting money into banks next month.

($1=1486.9 Won)