FSC beefs up rules on savings banks

By Kim Tae-jong

The financial authorities said Thursday that they have decided to strengthen the qualification of major shareholders and executives at savings banks to the level similar to those applied to commercial banks.

The move came as part of efforts to help ensure transparency in their management after the savings bank fiasco in which more than 20 savings banks had their business operations suspended due to poor financial health in the past two years.

“We have launched restructuring of savings banks since 2011 to revamp the troubled secondary banking sector and suspended 20 savings banks so far,” an official from the Financial Service Commission said. “But to tackle repeated problems in management at savings banks, we have also concluded to take more profound and preventive measures.”

The financial watchdog plans to strengthen regulations on savings banks to prevent prevalent irregularities such as the issuing of illegal loans and corrupt management, which are believed to lead many of them to insolvencies.

Under the plan, the authorities will add more requirements to approve and change major shareholders and executives so that under-qualified nominees should be screened properly.

The authorities will also evaluate major shareholders and executives on a regular basis to see whether they meet the new requirements, and take immediate steps if they are found to be unsuitable for the position.

They will also beef up the scope of responsibilities for senior managers by holding non-executives members accountable for any irregularities if they participate in key decision-making processes.

The authorities will also encourage more whistle-blowers to report irregularities and increase the maximum prize money to 300 million won from the current 50 million won.

They also make it mandatory for executives and inside inspectors to report illegalities at savings banks and punish those who neglect their duties.

To force savings bank to maintain financial soundness, the authorities will ban any expedient loans or activities to distort their capital adequacy ratio recommended by the Bank for International Settlements (BIS)

The financial regulator will soon announce the legislation of the new law to strengthen the regulation on savings banks and submit a bill to revise the related laws in December.

In May, the financial authorities suspended the business operations of four savings banks, citing poor financial health laden with toxic property loans, in a third and last move to restructure the secondary banking sector.

With the four newly suspended banks, a total of 20 savings banks were slapped with a six-month suspension, but critics blamed financial regulators for their neglect of preventive action before the situation entered the terminal stage.