By Kang Seung-woo
Three to four savings banks are considering asking for public funds as part of bolstering their assets, the nation’s financial regulator said Thursday.
“A few savings banks are interested in receiving special funds. Around the deadline of Nov. 21, they are expected to apply,” said an official of the Financial Services Commission (FSC).
The Korea Finance Corp. (KoFC) that manages the fund also confirmed that some savings banks are expected to apply for funding although it did not specify who they were. The state-run agency is scheduled to hold a presentation next week.
In August, the FSC asked the finance ministry to allot 500 billion won in taxpayers’ money for a savings bank overhaul fund to shore up the banking sector.
As of the end of June, the final month of the fiscal 2010 for the secondary lenders, a total of 24 entities whose bank for international settlements (BIS) ratio stood at between 5 percent and 10 percent were eligible to request funding. The BIS ratio is a barometer for banks’ solvency.
This will be the first time for the government to inject public funds into normally-operating financial institutions for capital expansion.
The special fund is a matching one that requires major shareholders to funnel in the same amount of money as the government.
Those who received the taxpayers’ money will sign a memorandum of understanding (MOU) with the KoFC and their dividends and salary for executives and employees will be monitored. If the capital adequacy ratio falls after receipt of the money, the savings bank will be placed under KoFC regulatory guidance.
The FSC said that strengthening their capital base will boost management transparency. However, savings banks need to rule out speculation that the fund will pave the way for government influence on management.
The KoFC was open for applications for funding in September for one month, but banks did not apply, worried that they would be labeled as cash-strapped. The application deadline was then extended for one more month.
“The major shareholders who are de facto the owners of savings banks are generally reluctant to receive funds from the government,” said an official of the secondary-banking sector.
The nation’s savings bank industry is suffering from soured project financing (PF) loans amid the slumping property market, which has resulted in a total of 16 lenders being ordered to halt business operations this year.