FSC to resubmit savings bank bill

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FSC to resubmit savings bank bill

Korea’s financial regulators are trying once more to pass legislation that strengthens supervision of savings banks with stronger rules on savings banks’ issuing more loans, oversight for majority shareholders and subordinated bond sales.

Meanwhile, the savings banks that survived the suspensions of last year and last Sunday, including the sector’s eight largest, Shilla Savings Bank, are actively seeking ways to turn flagging business around and avoid the fates of the 19 savings banks that have closed down since January 2011.

The Financial Services Commission announced yesterday that it is re-submitting to the National Assembly a proposed revision of the Mutual Savings Bank Act, originally proposed last October and never acted on.

With the new lawmakers chosen during April’s general election slated to begin their terms on May 30, the legislative process must begin all over again.

The proposed changes include empowering the Financial Supervisory Service to conduct direct investigations into the affairs of major shareholders of savings banks suspected of wrongdoing, as well as charging a steeper fine when wrongdoing is confirmed.

Currently, the financial watchdog can only ask for documentation concerning the alleged wrongdoing, and only the savings bank is liable to a fine even if a major shareholder was found guilty of corruption.

Moreover, the common practice of savings banks lending to multiple borrowers working on the same construction project will be regulated by tighter lending limits of “less than 25 percent of equity capital,” which are usually applied to a single borrower taking out multiple loans.

Another noteworthy proposal is to bar retail investors from buying subordinated bonds.

Only professional investors and the major shareholder of the savings bank will be allowed to invest in the high-return, high-risk investments.

Savings banks marketing subordinated bonds will also need to include warnings that those investments are not insured and will not be repaid until all other debts of the bank are fully paid.

The proposed revision is slated to undergo reviews by government agencies such as the Ministry of Government Legislation and the cabinet by June before being submitted for parliamentary approval.

Meanwhile, savings banks that survived regulatory scrutiny this time around - such as Hyundai Swiss, HK and Dongbu savings banks - are trying to bolster their operations by diversifying investments, managing excess liquidity and finding new revenue sources.

Shilla Savings Bank, which plans to secure 10,000 new deposit accounts through smartphone banking, denied media reports that it was seeking a buyer to sell the entire operation, according to an interview with CEO Cho Hyun-kuk yesterday.

By Lee Jung-yoon[joyce@joongang.co.kr]
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