More savings banks to be suspended

Stress test begins to ferret out bad apples from good ones

By Kim Tae-gyu

“Several” more savings banks are expected to face suspensions, an official of the Financial Services Commission (FSC) told The Korea Times Monday, as the regulator began its stress test on the troubled secondary banking industry.

``The chances are that business of several savings banks will be suspended in consideration of current situations,’’ said the FSC official who asked not to be named.

Although the insider’s prediction comes even before the inspection is getting into full swing, it is being given credence because the FSC has been closely monitoring the troubled industry for quite some time and in consideration of FSC Chairman Kim Seok-dong’s “get-the-job-done” personality. Kim, however, has received bruises on his reputation for a series of half-baked measures about the Lone Star case and the Woori Financial Group sale.

The FSC has formed 20 special teams comprising 340-plus specialists to delve into financial health of 85 savings banks over the next two months.

The inspection is spreading fears to quite a few of the mini lenders.

Eight out of the overall 105 experienced got their operations suspended this year. One of the eight was taken over and is brought back to operation.

``Among 98 savings banks in operation, we will look into financial soundness of 85 players excluding 13, which either have already gone through inspections this year or are owned by state-run entities,’’ FSC Chairman Kim said. ``The Bank for International Settlements (BIS) ratio would be the benchmark. Those whose BIS ratio is less than 1 percent with excessive obligations might see their operations halted.’’

The BIS ratio is recognized as a barometer to measure the solvency of a bank through comparing its risk-bearing capital and risk-weighted assets. A higher number represents a better status.

Kim said that savings banks with a BIS ratio higher than 5 percent would be fine while those between 1 and 5 percent would be recommended to draw up a set of steps to raise their BIS ratio to 5 percent in six to 12 months.

Lenders with BIO ratios of less than 1 percent might be in trouble but Kim said that the figure would not be that large.

``Any savings bank would be temporarily closed down only after meeting three requirements ― Its BIO ratio falls short of 1 percent, its debts should be larger than assets and its self-rescue plan fails to get the approval of an assessment committee,’’ Kim said. ``Hence, the number would be limited even if there are any.’’

Yet, concerns swirl that quite a few will be subject to stoppage of operation since some of savings banks suffered financial problems in the wake of the global financial crisis and the resultant slump in the construction industry.

While promising not to shut down savings banks during the next three months, Kim said that the FSC will raise public funds not to bail out sluggish savings banks but to help viable ones embellish their BIS ratios.

The state-run Korea Finance Corp. (KoFC) will issue bonds to channel them to savings banks, which hopes to jack up their BIO ratios.

``An eligible applicant has to meet two conditions that its current BIO ratio is higher than 5 percent and its major stakeholders are ready to funnel their own money,’’ an FSC official said.

Out of the eight suspended savings banks, one was sold to Woori Financial Group and three will be sold in a package with Daishin Securities chosen as a preferred bidder.

The FSC hopes to dispose of the remaining four in the not-so-distant future.