Some savings banks wrestle with run

By Kim Tong-hyung

Financial authorities struggled to reassure panicked customers who were queuing up to withdraw their savings from branches of savings banks Monday as fears grew over an aggravating secondary banking crisis.

The run on Tomato 2 and some other lenders began the morning after the Financial Services Commission (FSC) suspended seven savings banks, including major players Tomato and Jeil, in its latest attempt to purge secondary lenders that were crippled by exposure to the country’s toxic property sector.

The temporary business suspensions were imposed after the Financial Supervisory Service (FSS), FSC’s executive arm, completed an inspection of 85 savings banks here.

Financial regulators had previously suspended nine savings banks between January and August, including industry giant Busan Mutual. The currently suspended 16 lenders account for 15 percent of the country’s 105 savings banks.

FSC officials stressed that no further suspensions are needed as the remaining lenders are stable. However, they could sideline more banks this week should customers continue to rush to take money out of them.

Despite receiving a clean bill of health from financial regulators, Tomato 2 was a victim of the fear stoked by the suspension of its parent company, Tomato.

Anxious customers crowded the entrances of Tomato 2’s branches in Seoul, Busan, Daegu and Daejeon from the early morning hours as they scrambled to withdraw their savings.

The bank’s Internet banking service wasn’t working during the morning hours, with company officials blaming the problem on servers overwhelmed by an explosive increase in traffic.

The theatrics of FSC Chairman Kim Seok-dong, who quickly arranged a trip to Tomato 2’s Myeong-dong branch in downtown Seoul to make a deposit of 20 million won (about $18,000), fell short as an appeal for calm.

While none was as hit as hard as Tomato 2, a number of other savings banks including Solomon, which continues to fight rumors of its financial trouble, were fretting about an exodus of customers as well.

Tomato 2 officials estimated that they lost around 41.6 billion won in savings during the day.

``Tomato 2 is being independently managed from Tomato, which was hit with a suspension yesterday. The inspection by the FSS has proved that this bank is healthy, strong and free of problems,’’ Kim told Tomato 2 customers at the Myeong-dong branch after taking the microphone.

More than 1,000 customers flocked to Tomato 2’s Myeong-dong outlet just during the morning hours, although the bank has limited the withdrawals at the branch to 250 customers a day and 300 at other branches.

``There is no reason for you to be worried. I just made a deposit in this bank,’’ Kim said.

Korea Deposit Insurance Corporation (KDIC) President Lee Seung-woo also made a 20-million-won deposit at the same Tomato 2 branch and told reporters that the bank wouldn’t need to be suspended if it could prevent customers from mounting a serious run. But this is certainly looking like a big ``if.’’

``According to results from the FSS inspection, Tomato 2 has a reasonably healthy Bank for International Settlements (BIS) capital adequacy ratio of 6.26 percent. It would be ill-advised for customers to withdraw their deposits now and inflict themselves with unnecessary losses in interest payments, and financial setbacks,’’ Lee said.

Tomato 2 officials claim that the bank has enough liquidity, at around 500 to 600 billion won, to withstand another tough day or two. And a recently approved plan for a capital increase of 44 billion won will further strengthen the bank’s health by pushing its BIS ratio into the double digits, an FSC official said.

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.

It all 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.

In Sunday’s news conference, Kim was quick to claim that the clean-up process of the savings bank industry has virtually been completed. However, FSC officials also admit that six other savings banks, which they refused to name publically, narrowly avoided the recent suspensions and warrant further monitoring.