Big lenders weary about secondary banking purge
While financial authorities continue to push forward their efforts to clean up Korea’s messy secondary banking sector, it remains to be seen whether they could properly finish what they started.
In its latest attempt to purge secondary lenders that were crippled by exposure to the country’s toxic property sector, the Financial Supervisory Service (FSS) suspended the Solomon Savings Bank, Mirae Savings Bank, Korea Savings Bank and Hanju Savings Bank Sunday. This extended the list of savings banks shelved by financial regulators to 20.
The financial regulator had arranged the previously suspended savings banks purged, be cut up and absorbed by the country’s biggest commercial banking groups like Woori Financial, KB Financial, Hana Financial and Shinhan Financial. It remains to be seen whether they could push the same process now, when banking groups are expressing reluctance to eat anymore bad apples.
Talking to reporters at the sidelines of the annual Asian Development Bank (ADB) conference in Manila, the Philippines, KB Financial Group President Lim Young-rok, who happens to be a former finance ministry official, made it clear the company doesn’t intend to acquire another troubled savings bank.
The state-run Korea Deposit Insurance Corporation (KDIC) also admits its purse is close to being depleted after spending nearly 16 trillion won on the restructuring processes of the 16 savings banks suspended last year. It would need at least 5 trillion won to restructure the newly suspended four banks, according to market sources.
``The last time we shouldered responsibility as the banking sector’s leading player and absorbed a savings bank. While savings banks had profited significantly during the latest property boom on project financing loans, their business models are limited now, especially when considering this is a low-interest rate environment,’’ Lim said.
``We can’t afford to swallow another savings bank. It’s not the time for us to expand, but to strengthen ourselves internally.’’
Authorities are concerned that the problems at savings banks, which account for around 3 percent of Korea’s financial services industry, could eventually blow up and shake the country’s financial stability.
Savings banks indulged in a lending spree over the past decade, principally funding property investment to exploit the rampant speculative demand.
All this came tumbling down in the economic turmoil in 2008, which had banks running for cover and calling in loans. Many borrowers were unable to repay, which led to crises at many of these banks before regulators mercifully pushed them to the sidelines.
After suspending 16 savings bank last year, FSC Chairman Kim Seok-dong had said the clean-up process of the savings bank industry was virtually completed. That obviously has proved not to be the case, not even close when the market’s major player Solomon was among those sidelined and now looking to be delisted from the stock market.
KB last year absorbed the suspended Jeil Savings Bank, while Hana took over the Jeil 2 Savings Bank and Ace Mutual Savings Bank. Shinhan acquired Tomato Savings Bank, Woori took Samhwa Mutual Savings Bank and Busan-based BS Financial acquired Prime Savings Bank and Parangsae Savings Bank in a packaged deal.
However, the process was far from smooth as commercial banking groups complained about being forced to acquire the distressed lenders. Shinhan and BS recently demanded KDIC compensation as the financial health of the savings banks they acquired were found to be in even a worse state than thought. The KDIC is required to compensate these companies in cash, meaning that its finances will be stretched even thinner.
The KDIC is also experiencing trouble in selling off the foreign branches, real estate, golf courses and other assets that had been owned by the suspended savings banks, sources said.