Solomon, 3 others closed for six months

By Kim Tae-jong

Financial authorities suspended business operations of four troubled savings banks Sunday to revamp the secondary banking sector laden with toxic property loans.

The four ㅡ Solomon Savings Bank, the No. 1 in assets and lending, Mirae, Korea and Hanju savings banks ㅡ were slapped with six-month suspensions. Now, a total of 20 savings banks have been closed by the Financial Supervisory Service (FSS).

The stock trading of the listed Solomon and Korea savings banks will be suspended from today, a process that is necessary prior to determining whether to delist them, the Korea Exchange (KRX) said.

The fate of the banks is not clear as the Korea Deposit Insurance Corp. (KDIC) can’t finance their recovery for sale as the result of nearly 16 trillion won it spent last year to rescue the 16 previously suspended banks.

Woori Financial, KB Financial, Hana Financial and Shinhan Financial, which were forced to absorb the restructured secondary lenders last year, are making it clear they don’t intend to acquire any more savings banks.

The freshly suspended banks failed to meet recommended capital adequacy ratios despite a full-year grace period, FSS officials said. ``The four have less than one percent of the capital adequacy ratios recommended by the Bank for International Settlements (BIS) or more debts than asset,” said FSS official Joo Jae-sung, citing this as the primary reason for the suspension.

The suspended banks will be required to name a new director in charge of restoring their financial soundness and achieve a capital adequacy ratio of 5 percent within the next 45 days. If they fail to do so, they will face liquidation, FSS officials said.

The officials had reviewed a total of six savings banks, which were given grace periods last year, and two of them managed to restore their financial health to a level good enough to avoid suspension, Joo said.

``We will continue to check the financial health of secondary lenders on a regular basis, although our restructuring measures have been completed. It is also very important to ease unnecessary fears of account holders and prevent bank runs to prevent savings banks from suffering from even more trouble,’’ he said.

The financial authorities have conducted an audit on 98 savings banks since last year in an attempt to clean up the overall industry as many lenders suffered from cash flow problems since the 2008 global financial crisis. These secondary banks have been paying dearly for ruthless attempts to exploit the mid-2000s property bubble, which came crashing down with the Lehman Brothers.

Last year, the Financial Services Commission (FSC), the decision-making body of the FSS, called on the finance ministry to allocate 500 billion won in public funds to restructure the industry.

In addition to the suspensions, officials at the banks will also face legal punishment for alleged embezzlement and breach of duty as the prosecution will launch a separate investigation.

“We are also considering taking legal action against any illegalities of the four savings banks,” said FSC official Kim Joo-hyun. “We will also confiscate concealed property of executives and major shareholders if necessary.”

The suspension will deal a fatal blow to the four and their account holders as their assets are estimated at 10 trillion won with over 1 million account holders.

On Friday, a number of account holders rushed to branches to withdraw deposits upon the news reports that the authorities would soon unveil the list of savings banks subject to suspension.

That day alone, over 200 billion won was withdrawn at the four banks with hundreds of depositors lining up in front of branches before opening time.

At Solomon Savings Bank, the top secondary lender, over 100 billion won was withdrawn on Friday after about 50 billion won the previous day. The lender’s branches also had to pay deposits to account holders until 11:30 p.m., much later than its official closing hour of 4 p.m. due to queues.

On Saturday, the financial regulators and the KDIC also dispatched officials to branches of the four banks to prevent executives and shareholders from illegally withdrawing money.

But the regulators advised depositors to refrain from unnecessary withdrawals, saying account holders will obtain payment guarantees of up to 50 million won under the law.

“Bank runs can cause damage to savings banks as well as depositors. The payment of up to 50 million won will be guaranteed,” Kim said. “And sister financial firms of the four banks have nothing to do with the suspension.”

To minimize the inconvenience to account holders at the, the KDIC will offer them provisional deposits up to 45 million won from May 10. According to the FSC, about 8,000 people have more deposits than 50 million won, and they may face financial ruin if the banks are liquidated.