For the first time, the Finance Ministry said it would begin to permit banks to write off their losses on soured loans to finance companies known here as non-bank banks.

The South Korean banking system has been staggering under hundreds of billions of dollars in soured loans accumulated during years of state-directed lending that stressed relationships rather than credit quality.

The bank released $3.3bn it had previously set aside for soured loans and other lending commitments as it said credit conditions were beginning to improve.

About $213 million of that was related to soured loans not included in the partnership, an executive with the firm said.

Unlike most savings institutions, some banks are also saddled with soured loans for leveraged buyouts, oil and gas exploration and third world nations.

The bank, the world's largest, ultimately wrote off about $2 billion in soured Argentine loans and investments.

Japanese banks are trying to cut costs because of huge amounts of bad debt left from soured loans made to real estate and stock speculators in the late 1980's.

Traditional banks like Chase were mired in soured loans, dismissed as has-beens.

To avert a crisis, the government stepped in, purchasing $3.5 billion of the soured loans and effectively taking over the bank.

Great American Bank sharply increased its estimate of losses from soured loans, making it a likely candidate for seizure.