But the financial watchdog said big ailing banks would be given a month of grace period as their capital increase plans were still in the pipeline."We are at the moment not thinking of including large banks in the list of non-viables. But a month later they will be no exception if they fail to effectively increase capital," Chung said.

Witnesses said expectations of imminent closure sparked panic deposit withdrawals from the banks believed in the list of non-viables on Saturday and that union members of some of the banks had began sit-in protests.Domestic media reported Dae Dong Bank, Dong Nam Bank, Chungbuk Bank andKyungki Bank would be classified as non-viable.

JoongAng Ilbo said on Saturday the four failing banks would be taken over by four blue chip banks each - Shinhan Bank, Kookmin Bank, Housing and Commercial Bank and Koram Bank.

As part of the International Monetary Fund's nearly $60 billion rescue programme, South Korea agreed to draw up a reform programme for commercial banks by the end of June after an extensive management assessment.

The Financial Commission said it was putting the finishing touches on the assessment of 12 commercial banks whose capital adequacy ratio, as required by the Bank for International Settlements, was below eight per cent at end-1997.

Analysts said the banking restructuring fell short of expectations and financial instability would continue despite the reform. "This sort of reform must be decisive and swift. Deposits will continue to flee from weaker banks into stronger ones," said Lee Hahn-koo, president of Daewoo Research Institute. "I am afraid the restructuring plan comestoo late," Leesaid.

Finance minister Lee Kyu-sung said in a television talk show on Sunday the government would expand spending from the state budget to minimise side effects of the country's financial and corporate restructuring.

"The government plans to expand the budget deficit in the second half of this year to support small- and medium-sized firms, exporters, housing contractors and infrastructure projects," said Lee in a programme televised by the Korea Broadcasting System (KBS).

The Financial Supervisory Commission said it had asked banks, securities houses, insurers and merchant banks to roll over 84 trillion won ($61.2 billion) of loans extended to small- and medium-sized companies, which were maturing before the end of this year.

Lee also said the government would take over bad loans from the banks to be merged into blue chip banks to prevent the financial status of the absorbers from deteriorating.

The commission earlier said it would also begin in July management assessment of 12 othercommercial banks whose BIS capital ratio was eight per cent or higher. The initial stage of financial restructuring would be completed by the end of September, the commission said.