Devise a new business model

Home > Opinion > Editorials

print dictionary print

Devise a new business model

The Financial Services Commission announced yesterday that four more mutual savings banks, including Solomon Savings Bank, will be suspended for six months. Before and after the announcement, the savings banks saw bank runs as clients tried to salvage their deposits. Customers with smaller savings joined in, even though deposits under 50 million won ($44,000) are protected by law.

The additional suspension of mutual savings banks could possibly cause repercussions, but these won’t likely be significant enough to rock the overall economy. The restructuring of weak mutual savings banks had been forewarned. The savings banks that were ordered to suspend their operations had received warnings in September of last year. They were given an ultimatum to turn their businesses around. But their exposure to real estate financing weighed heavily due to the continued slump in real estate market.

The amount of individual savings exceeding the 50 million won mark at the four weak savings banks dwindled from 210 billion won at the end of last year to 78.9 billion won. Consumers are better prepared after enduring two similar cases of restructuring last year. The damage this time will therefore be limited. However, there are several problems in the way the financial authorities have conducted the mutual savings industry restructuring. Financial restructuring must be implemented in a speedy and resolute manner in order to minimize confusion and repercussions on the overall financial sector. Ailing companies must be cleaned up fast so that the harm does not spread to healthier ones, and it should be done in ways that quickly restore consumer credibility in the financial sector.

Financial authorities were wrong for having offered a grace period for the weak banks last year. These firms had already been in an irreparable state and more time wouldn’t have saved them. There was no reason to put off their closure until after the legislative election in April. The eight-month reprieve was given purely for political reasons. If actions had been taken earlier, consumers and the government would not have had to pay for the extra cost.

The government is not done with its work simply by axing the weak banks. Consumers with low credit ratings now have fewer places to turn. The government must make sure chain insolvency does not spread to other nonbanking lenders; at the same time it must work on devising a new business model for mutual savings banks so that they will still serve as useful community lenders.
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)

What’s Popular Now