Kyongeun savings suspended

By Lee Hyo-sik

The Financial Services Commission (FSC) has suspended the operation of Kyongeun Mutual Savings & Finance, a small-sized savings bank headquartered in Ulsan, the southeastern industrial town, for six months, citing its worsening financial condition.

It was the ninth such suspension this year, due to capital shortages as a result of soaring bad loans. The secondary banking sector is being overhauled for its poor financial state, raising worries about it becoming a new flashpoint for an economic crisis. Also being considered is an inspection by the National Assembly to investigate how political influence was peddled and bought, worsening the sector’s financial sickness.

The financial regulator said Friday that Kyongeun Mutual Savings & Finance, operating three branches in South Gyeongsang Province with 22,645 customers, failed to meet a regulatory capital requirement, adding the bank will be suspended until Feb. 4, 2012.

The move came despite the FSC assurance that no drastic action will be taken until September when the assessment about the financial state of the secondary banking sector is completed. FSC said that it was an exception and its assurance is still valid.

The FSC held an emergency meeting Friday afternoon to slap the savings bank with a business suspension and ordered it to take a range of measures to improve its management and financial soundness.

For the next 45 days, Kyongeun Mutual Savings & Finance has to raise its capital adequacy ratio to 5 percent through capital increase and self-rescue steps, if it wants to normalize its operation. Otherwise, the state-run Korea Deposit Insurance Corp. (KDIC) will dispose of its assets.

The bank told its customers and investors that its Bank of International Settlements (BIS) ratio was 8.85 percent in the first half of the year.

But the financial regulator found that its real BIS ratio was minus 2.83 percent, with its debts exceeding assets by 14.1 billion won.

``We launched a probe into Kyongeun Mutual Savings & Finance and discovered its poor financial standings. It was separate from our larger-scale investigation into 85 savings banks. Until September when the results of the larger scrutiny are announced, we will not suspend any bank unless there is a massive bank run,’’ an FSC official said.

Under the law, payment of up to 50 million won is guaranteed to each Kyongeun depositor. Depositors will be allowed to draw up to 20 million won out of their savings from Aug. 9, while those in need of additional funds will be able to borrow up to 25 million won from a commercial lender. The date for the full payments has not yet been decided.

The FSC said 271 customers made a deposit of over 50 million won, totaling 3.6 billion won. Additionally, 191 individuals invested in the bank’s subordinated bonds, estimated at 7.1 billion won.

leehs@koreatimes.co.kr