By Kang Seung-woo
The besieged financial watchdog will get tougher on major shareholders of savings banks to try and curb growing corruption scandals at the secondary banks.
According to the Financial Supervisory Service (FSS) on Thursday, it plans to monitor 294 major shareholders and their family members from 67 savings banks, which have 300 billion won in assets and are subsidiaries of large savings banks, to see if they have violated any finance-related laws.
The shareholders are those who have a more than a 10 percent stake in the selected 67 savings lenders.
The FSS said that it will also carry out a stress test to see if they are fiscally sound.
The FSS’ strict check-up is a pre-step of the regulator’s review of their eligibility as the largest shareholder, which is scheduled in July.
The strict action came after the chief and other large shareholders and executives at the already-suspended Busan Savings Bank were found to have taken out billions of dollars in illegal loans from the institution and engaged in other irregularities involving a total of about 7.6 trillion won ($7.1 billion).
In addition, officials from Busan and other ailing savings banks have also been accused of tipping off their employees’ family members and close friends about their impending suspension so as to help them withdraw their deposits in advance and avoid damage from the suspension.
As a result, the FSS, headed by Governor Kwon Hyouk-se, Wednesday drew harsh criticism from President Lee Myung-bak, who last week ordered a thorough probe into the recent savings bank-linked scandal, expressing frustration on the moral hazard at financial institutions.
Ahead of the announcement of the scheduled investigation, the FSS has built a database of 475 major shareholders from 105 savings banks across the nation. The database includes their personal data, breach of regulations and links with subsidiaries.
The FSS intends to take advantage of the database in deciding if they are eligible to be major shareholders in July.
If they fail to make the cut, they will be given a six month grace period to come up to a standard, but otherwise, they will be deprived of their status as a major shareholder and forced to reduce their stake to below 10 percent.
“The main culprit of the savings bank insolvency is their major shareholders’ engagement in unfair practices including illegal lending,” said an official of the FSS.
“In the maiden review to deal with their eligibility as a major shareholder, we will take strict measures against them.”
Amid growing project financing (PF) woes, eight savings banks have been ordered to halt their business since January, with many others also suffering from the non-performing PF loans, when the slumping property market has yet to see any sign of recovery.