By Kang Seung-woo
Financial regulators have told savings banks to raise their BIS capital adequacy ratio to 8 percent from the current 5 percent. The heightened rate reflects their determination to improve the troubled secondary banking sector.
“While launching an inspection of 85 savings banks Monday that will take two months, the financial authorities also told the secondary lenders whose BIS ratio falls short of 8 percent to draw up measures to raise the ratio,” said an official of the Financial Services Commissions (FSC).
The FSC, the nation’s financial regulator, has formed 20 special teams comprising 338 specialists including 182 from the Financial Supervisory Service (FSS) and 60 from the Korea Deposit Insurance Corp. (KDIC) to look into the financial health of the savings banks.
It told major shareholders to strengthen the capital bases at their own expense by selling non-business related real estate or insolvent affiliates.
The government generally imposes a BIS ratio of 5 percent, but the higher benchmark means it is getting tough during the inspection of troubled savings banks, which have been suffering from deteriorating asset quality due to soured construction loans.
“Although savings banks claim their capital ratio is 8 percent from their own tests, inspections may reveal that this is overly optimistic,” the official said.
“Therefore, it is a preventive action to give savings banks time in advance to put plans in place.”
There are 98 savings banks currently operating here and their self-reported BIS ratio averaged 9.83 percent as of the end of last year. Half of them have hinted that they might submit plans to boost their capital after the examination.
The action comes after the FSC decided to evaluate the financial conditions of local savings banks to determine whether to use public funds to bail out viable players in order to prop up the ailing sector.
“The FSC will look into the financial soundness of 85 savings banks,” FSC Chairman Kim Seok-dong said.
“Those whose BIS ratio is less than 1 percent with excessive obligations might see their operations terminated.”