Biggest savings bank is suspended
A customer of Daejeon Mutual Savings Bank tries to raise the bank’s metal shutters in Jung District, Daejeon, after it was announced that its operations had been suspended for six months. By Kim Seong-tae
Korea’s financial regulator yesterday suspended for six months the operations of Busan Savings Bank, the country’s largest savings bank group by assets, and its affiliate Daejeon Mutual Savings because of a capital liquidity shortage resulting from sour construction loans.
It was the second sanction on the savings bank sector this year following the suspension of operations of Samhwa Mutual Savings Bank.
The Financial Services Commission chairman is increasing supervision of the savings bank sector in the face of mounting concerns over defaults of construction-related project financing loans because of the sluggish property market.
In addition, five other savings banks were placed on a watch list yesterday by the FSC. There are a total of 105 savings banks in Korea.
The FSC said it did not believe any more savings banks would be suspended in the first half of the year, noting that 94 banks now meet regulatory guidance on capital adequacy ratios.
But industry analysts said that they could not rule out more government rescue measures since they fear that there could be more bank runs on saving banks as customers could make mass deposit withdrawals.
To restore confidence, state-run Korea Finance Corp. and big commercial lenders are prepared to provide 2 trillion won ($1.8 billion) in credit lines to savings banks to head off a potential liquidity crunch, and the government may secure a fund of up to 10 trillion won together with Korea Deposit Insurance Corp., Kim Seok-dong, the FSC chairman, said.
The total assets of Korea’s 105 savings banks amount to 86.5 trillion won, accounting for about 3 percent of total assets held by financial institutions.
Savings bank customers are guaranteed up to 50 million won in deposits by the Korea Deposit Insurance Corp. in case of a bank’s collapse.
In explaining yesterday’s decision to suspend the two savings banks, the FSC said that Daejeon Mutual Savings Bank had negative capital with its liabilities exceeding assets by 32.3 billion won as of the end of 2010.
Its capital adequacy ratio, the key measure of capital strength, was minus 3.18 percent, far lower than the minimum regulatory level of 1 percent.
The FSC said Daejeon’s liquidity problems led to its decision to suspend Busan Savings Bank as well because it feared that the suspension of Daejeon Mutual Savings Bank could have led to a bank run at the parent bank.
However, the Busan-based bank’s liabilities exceeded its assets by 21.6 billion won as of the end of December, with its capital adequacy ratio standing at 5.13 percent.
“Daejeon Bank is in a situation in which it cannot respond to depositors’ withdrawal demand due to a liquidity shortage triggered by a recent run of deposit withdrawal,” the FSC said.
The FSC will monitor three other savings banks affiliated with Busan Savings Bank, including Busan II Savings Bank, Jungang Busan Savings Bank and Jeonju Savings Bank.
“The three other affiliates of the Busan Savings Bank group are in a relatively better condition in terms of liquidity,” said the FSC chairman in announcing the suspension of the parent group.
By Jung Jae-yoon [jyj222@joongang.co.kr]
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http://news.joins.com/article/068/5073068.html?ctg=
with the Korea JoongAng Daily
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