Regulators look to complete savings bank cleanup

By Kang Seung-woo

The financial authorities’ efforts to normalize remaining troubled savings bank are entering the final stage.

According to the Financial Services Commission (FSC) on Sunday, the Financial Supervisory Service (FSS), its executive unit, is scheduled to wrap up further investigations into six savings banks this week and the FSC will come up with a clear-out list early next year.

The FSS inspection is currently checking if they properly announced their third-quarter profits and their normalization process such as asset selloffs and capital increases lived up to plans submitted to the FSC.

The six savings banks under review are those who survived the government’s mass suspension of distressed secondary lenders on Sept. 18.

Completing a two-month inspection of 85 local savings banks that focused principally on their debt conditions and capital adequacy ratios, the FSC requested 13 savings banks with unhealthy financial conditions to submit plans for normalization and suspended seven of them whose Bank for International Settlements (BIS) ratios came in below 1 percent and whose debts outweighed assets.

In addition, the FSC granted them a grace period to push for normalization after finding the six’s plans were feasible.

If any of them fail to make the cut, they will face FSC orders for normalization including business suspensions in the worst-case scenario.

“The savings bank restructuring is underway and the financial authorities are required to take action as soon as possible before problems in the industry get worse,” FSS Governor Kwon Hyouk-se said Saturday.

A few of the six banks are leading players in the sector and they have reportedly missed the cut.

“Despite yet having to sell off assets, if they bring forward evidence that proves a deal is soon to be done, we can extend the grace period,” said an FSC official.

As soon as FSC Chairman Kim Seok-dong took over in January, the financial regulator suspended Samwha Mutual Savings Bank’s operations for six months after it failed to meet regulatory capital requirement levels, followed by the suspension of seven more banks including the sector’s giant Busan Savings Bank in the first eight months of this year.

The FSS launched the inspection of 85 savings lenders from July to September, forming 20 teams comprising 338 specialists including 182 from the FSS and 60 from the Korea Deposit Insurance Corp. (KDIC) to look into the financial soundness of the savings banks, which resulted in suspension of seven entities including other major players such as Jeil and Tomato.

Korea, Asia’s fourth-largest economy, has been wrestling with propping up the troubled sector as savings banks have been suffering from deteriorating asset quality due to soured project financial loans.