By Kang Seung-woo
By some indications, the government is considering creating public funds for its possible restructuring of troubled savings banks, as more than the originally-estimated budget is expected to be spent on propping up the ailing secondary banking sector.
With corruption scandals involving Busan Savings Bank ceaselessly popping up, the special funds for savings banks of up to 15 trillion won are expected to be shy of carrying out a purge of teetering savings banks in the second half of this year.
In addition, the fiasco is going viral in political circles and emerging as a potential backlash that could hit the ruling party hard one year ahead of the general and presidential elections, so the financial authorities are expected to reach into public funds to wrap up the rapidly expanding case as soon as possible.
On March 8, the Financial Services Commission (FSC) proposed a revised bill to enable the government to use part of aid funds designed to overhaul troubled savings banks if necessary. As part of the government’s move to overhaul the ailing sector, the FSC had been seeking to pool about 15 trillion won ($13.84 billion) in liquidity from the broader financial sector to create aid funds in a bid to draw ammunition for the drive. This has drawn criticism from the opposition parties that using the funds is nothing but a stop-gap measure and public money should be injected to restructure the struggling industry.
Three days later, the National Assembly passed a bill calling for the state-run Korea Deposit Insurance Corp. (KDIC) to set up a special purpose fund to which financial companies will chip in a total of 710 billion won annually from April 1 to the end of 2026.
As of Sunday, around 4.8 trillion won has been used for prepayments for customers of eight suspended savings banks and the sale of Samwha Savings Bank _ the first entity out of eight ordered to stop its operations in January.
Earlier this year, the FSC estimated that about 6.5 trillion won would be enough to sell the seven secondary financial institutions, but a series of illegal lending from them is increasing bad assets, which will eventually raise their sale costs.
“As the size of soured debt has increased more than expected, the government expects that 7 to 9 trillion won may be needed from the funds to sell the seven players. It is a general view that the government cannot brace for the restructuring of the savings banks in the second half with the remainder of the funds,” said an official at the financial authorities.
The FSC and the Financial Supervisory Service, its executive arm, have reportedly started talks over how to restructure the ailing sector, even though they have difficulty reaching a conclusion of how many savings banks will be ordered to shut their doors.
As a result, there are growing whispers that the financial authorities need to create public funds in advance to deal with a possible savings bank failure, with people mixed on whether it is appropriate or how much money is required.
But there is also the view that it would be better for financial authorities to cut straight to the point by using public funds to overhaul the sector as a massive corruption scandal involving the savings banks is growing.
Some senior officials from the financial regulators including Kim Gwang-soo, commissioner of the Korea Financial Intelligence Unit under the control of the FSC were arrested for allegedly taking bribes from one of the troubled savings bank in return for turning a blind eye to illegal lending activities and other irregularities.
If the current savings bank issue lasts until next year, with the two important elections on the line, it is forecast to damage the ruling Grand National Party. This will likely make the government depend on taxpayers’ money to get the monkey off its back.
ksw@koreatimes.co.kr