The South Korean share market may be headed for a steep fall as a fresh crisis engulfs the banking system, Jardine Fleming says. Analyst Steve Marvin warned the house's clients that the corporate sector was saddled with massive debt, while the country's recession deepened and the pace of economic reform stalled. A wave of failures at manufacturing corporates would spill over into the service sector, imperilling already-battered banking firms, he said. 'The coming banking crisis will shatter once and for all the lingering illusion of an early recovery in Korea,' Mr Marvin said. 'Corporate Korea is struggling to service a debt of almost US$500 billion, equivalent to 164 per cent of 1997 GDP. Interest payments this year alone will amount to $70 billion, or nearly half of total exports . . . The corporate sector cannot possibly generate enough cash to stay solvent.' Jardine Fleming also pointed to labour unrest and a possible steep fall in semiconductor prices over the second half as potentially blighting the outlook for the economy. The stock market's lead indicator - which jumped 4.86 per cent yesterday to 316.59 points - has fallen 15.61 per cent this year in won terms. In US dollar terms, it is up 4.07 per cent. 'A swift dynamic response by the government [to the expected crisis] might prevent a panic sell-off by foreign investors, but stunned Korean individuals and institutions are bound to dumps shares,' Mr Marvin said. 'In the event that foreigners are not reassured quickly, their selling would pound the stock market much lower.' He warned that the won could stumble again as corporate fundamentals continued to deteriorate. The won ended yesterday at 1,300 to the dollar, compared with its low this year of 1,810, touched on January 9. Jardine Fleming highlighted a year-on-year contraction in industrial output, with domestic operations at many firms losing cash while overseas units came under pressure as sales declined. It said asset sales to foreign concerns were not progressing smoothly, derailed by labour and due diligence concerns, and 'a wide perception gap concerning value - equity financing has essentially halted'. 'Korea depends on Asia for nearly 40 per cent of overseas sales,' it said. '[Many Southeast Asian] countries are in recession. The economies of the China bloc have lost momentum and Japan is in trouble.' Mr Marvin said that while the United States and European Union were more buoyant, 'rising protectionism threatens to restrain the sale of Korean products in those markets'.