By Kang Seung-woo
As troubled savings banks have been put under the knife, financial authorities are attempting to quell heightening fears about a possible bank run caused by massive cash withdrawals.
On Saturday, the Financial Service Commission (FCS) suspended three affiliates of Busan Savings Bank ― Jungang Busan Savings Bank, Busan II Savings Bank and Jeonju Savings Bank ― along with Bohae Bank for six months, citing concerns over liquidity.
The decision came just two days after the FSC suspended Busan Savings Bank and another affiliate, Daejeon Mutual Savings Bank, for six months each for failing to meet capital requirements. The slew of suspensions began with the clipping of Samhwa Savings Bank last month.
The developments have been fueling concerns that any of the banks could be brought down by investors taking flight and depositors withdrawing their money.
However, FSC Vice Chairman Kwon Hyouk-se asserted to journalists that the savings bank situation is close to being tamed.
``Things will probably settle down over the weekend,’’ Kwon said in a news conference Saturday.
However, Kwon admitted that the regulator was attempting to move ahead of the action to prevent the banks from being trampled by a run on deposits. The four savings bank hit with suspensions on Saturday had lost around 450 billion won (about $405 million) in withdrawals on Thursday and Friday, the FSC said.
``When we decided to suspend Busan Savings Bank and Daejeon Mutual on Thursday, we anticipated that those four other lenders would face massive withdrawals. However, we didn’t mention those expectations as they said they could meet demand for withdrawals,’’ Kwon said.
``Considering the amount of the withdrawals, as well as liquidity, balances, and borrowing capacity of the banks, we concluded that the banks could fall into a situation where they would be unable to pay deposits back to their clients. The banks will be reinstated after they recover their liquidity.’’
Kwon continued, ``It’s hard to imagine the bank run intensifying among savings banks. Savings banks with a capital adequacy ratio above 5 percent actually saw their deposits rise by 5 percent. We can promise that the 94 savings banks with BIS (Bank for International Settlements) capital ratio of over 5 percent will not be considered for business suspensions during the first half of the year.”
Among the remaining savings banks, four of them ― Domin, Woolee Savings, Saenuri Savings and Yes Savings ― remain beneath the 5 percent threshold.
Representatives at local savings banks were hopeful that the paranoia will soon abate.
“People used to have little knowledge about savings banks, but starting with the suspension of Samhwa, they are becoming more aware of them,” said an official of a southern Seoul savings bank, which saw its deposits increase by 1.2 billion won through Thursday and Friday.
Meanwhile, the Korea Deposit Insurance Corp. (KDIC) said it plans to conduct due diligence on the six suspended banks and push for their sales if they are deemed unfit for normalization.
Local savings banks, which offer loans to people and companies that have trouble accessing banks due to their low credit rating, at higher interest rates, have become one of the key hurdles to a full economic recovery and a financial market rebound, as a growing number of loans extended by them ran high the risk of turning sour due to the slumping property market.
Alerted to the escalating troubles, FSC Chairman Kim Seok-dong plans to pool nearly 20 trillion won in aid funds from the broader financial sector and taxpayers’ money in order to inject emergency funds into the liquidity-squeezed savings banks and induce mergers and acquisitions.