The South Korean economy may be heading for a much harder landing than previously feared, as the credit crunch exposes structural weaknesses in the banking sector and slowing global demand slices into export growth.

An executive at the Asian Development Bank (ADB) said yesterday that the Government's forecast of 4.5 per cent GDP growth for 2009 was too high and that the ADB would have to cut its forecasts “substantially”.

Other analysts have begun to do so, with some downgrading their outlook by as much as 50 per cent from the Government's official forecast.

The new warning from the ADB comes after stock and currency markets gave a tepid reception yesterday to the Government's $130 billion (£76 billion) confidence-restoring package that was announced on Sunday.

Seoul's move — chiefly comprising a giant guarantee for banks' short-term borrowings and a $30 billion drawdown from foreign exchange reserves — is expected to slow a rout of the won, but analysts expressed doubt that it would solve the deeper problem of excessive leverage in the sector.

Claudio Piron, JPMorgan Chase's Korea strategist, said: “It helps in terms of adding stability to the market, but there's still the economics and fundamentals that probably mean you will have some protracted weakness for the next three to six months.”

The South Korean Government has made repeated attempts to persuade investors that its banking sector is strong enough to weather the storm, but the cracks have begun to show. The loan-to-deposit ratio at the biggest four banks is between 149 and 181 per cent, and seven big lenders were put on negative watch for a possible credit rating downgrade by Standard & Poor's, the credit ratings agency.

The Government is expected to announce today a package worth about $9 billion to help out the construction sector, which is experiencing trouble rolling over its debt.

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