By Kim Jae-kyoung
Staff Reporter
The nation's financial regulator said Friday that it has decided to raise the capital adequacy ratio requirement for savings banks to 7 percent from the current 5 percent on a gradual basis in a bid to curb their risky lending and improve their financial soundness.
The measure came as part of the Financial Services Commission (FSC)'s measures to tighten regulations on local savings banks and mutual financial services companies.
Under the measures, the regulator will also push down the amount banks can lend in risky project financing (PF) while reducing their loans to property and construction sectors, it said.
It will also call for the small-scale lenders to lower the ratio of project financing to their total loans to 25 percent by 2011 and 20 percent by 2013 down from the current 30 percent.
``Concerns have grown over savings banks' financial soundness amid their expansion of project financing and the increasing neglect of lending to low-income people,'' FSC Vice Chairman Kwon Hyouk-se told reporters.
The restrictions will initially apply to 10 local savings banks with assets over 2 trillion won ($1.8 billion) and eventually take effect at smaller lenders, it said.
The decision came after some institutes collapsed amid the global financial crisis, increasing jitters about savings banks' financial health and raising questions over effective regulation.
Analysts said that savings banks have been exposed to rising credit risks as they have expanded at the expense of their asset soundness, which many believe will become a major stumbling block to a full economic recovery once an exit plan is in place.
Savings banks here have been rushing to grow over the years by offering higher deposit interest rates than commercial lenders, attracting large amounts of money, mostly from individuals. To cover the higher costs and realize larger net interest margins, they have been extending loans to construction firms and other businesses that are highly vulnerable to economic changes.
According to the Korea Federation of Savings Banks, Sunday, 104 lenders across the country held a combined 84.4 trillion won in assets as of the end of February, up 20 percent from a year earlier. The top five expanded their combined assets by 33.6 percent to 38.9 trillion won.