Customers shrug off shutdowns of 4 savings banks

On the first morning of business after the Financial Services Commission shut four troubled savings banks Sunday, customers remained relatively calm, having learned lessons from past shutdowns of debt-ridden savings banks. There were no signs of a serious bank run throughout the day yesterday, according to the financial regulator.

The government regulator announced Sunday that the operations of Solomon Savings Bank, Mirae Savings Bank, Korea Savings Bank and Hanju Savings Bank would be frozen for six months and ordered the institutions to immediately raise capital.

At 10 a.m. yesterday, customers of Solomon Savings Bank gathered at a branch in Yeoksam-dong to find out how to get their money back from the government insurance scheme. Officials from the bank decided to hold Q&A sessions twice a day starting this week to tell customers how to get temporary payments of up to 20 million won ($17,582) from May 10 at around 300 branches of six designated commercial banks that included Nonghyup and Kookmin.

“I deposited about 30 million won and today I was advised by one of the bank employees on how and when I should withdraw my money so I feel safe,” said a 33-year-old housewife surnamed Lee at the Q&A session. “There were around 10 customers and four bank officials gave instructions on how to get our money back.”

Solomon has been recommending customers to keep deposits under the insured 50 million won level ever since the troubled savings bank industry was put under the scrutiny of the government, according to the bank.

At the main branch of Jinheung Savings Bank in Bukchang-dong, central Seoul, about 20 customers were waiting at around 9 a.m. yesterday. Jinheung is a subsidiary bank of Korea Savings Bank, but it wasn’t shut down.

“At two major branches of Jinheung Savings Bank, a total of 22 withdrawals have been confirmed as of 9:30 a.m., and it is a very small figure,” said an official at the Financial Supervisory Service.

“The surviving subsidiaries have secured sufficient percentages of liquid assets, which stands at 22 percent, to prepare against possible bank runs,” said the official.

According to the Korea Federation of Savings Banks, a total of 38.9 billion won was withdrawn from five subsidiaries of the four halted banks that are still operating and Hyundai Swiss Savings Bank, which barely survived the latest suspensions, as of 4 p.m. yesterday.

“Given that the average daily withdrawal is less than 10 billion won, today has been a normal day,” said an official at the federation. Compared with last September’s huge withdrawals of money from savings banks after seven major banks were shut down, the amount is small, the official explained.

Busan Solomon Savings Bank, a subsidiary of the suspended Solomon Savings Bank in Seoul, is also operating smoothly. The bank’s main branch has put up a sign informing customers that it is a separate corporation from its parent company.

At a press conference yesterday, FSS officials confirmed that signs of serious bank runs declined in the afternoon. According to them, more than 40 billion won was withdrawn for five consecutive days when Jeil and Prime savings banks were shut down last September.

FSS and Korea Deposit Insurance officials have also been dispatched to the suspended banks.

As for delisting the suspended banks, a Korea Exchange official said if the banks succeed in normalizing their operations after six months, there is a possibility that they might not be ousted from the securities market. Trading of Solomon and Korea savings banks, however, has been blocked since yesterday morning. A special committee will be convened to discuss delisting the two banks.

Though there were no bank runs, prosecutors yesterday launched probes into financial irregularities of the four suspended banks. The launch of the investigation comes one day after the Financial Services Commission suspended the banks, as they failed to meet the capital adequacy ratios recommended by the Bank for International Settlements.

They raided the headquarters and key branches of the four banks as well as the residences of their shareholders and executives to investigate alleged irregularities.

More than 30 locations were searched simultaneously to secure evidence.

Solomon, Mirae, Hanju and Korea savings banks are suspected of giving out loans without checking credit histories, and their top shareholders and management are suspected of embezzlement and bribery.

Prosecutors have already banned major shareholders and executives of the suspended banks from leaving the country.

An arrest warrant was issued by the state investigator yesterday for Kim Chan-kyong, chairman of Mirae Savings Bank who was caught last week trying to flee to China.

Prosecutors are currently tracing the whereabouts of the 13 billion won of company funds that Kim withdrew last week.

Prosecutors also launched investigations last year when the FSC announced suspensions of other large-scale savings banks in March and September, and a number of bankers turned out to be allegedly involved in financial irregularities.

By Song Su-hyun, Lee Eun-joo [angie@joongang.co.kr]