As losses stack up, more savings banks may close
According to data released by the Financial Supervisory Service (FSS) on Tuesday, the combined net loss of 93 local savings banks reached 1.2 trillion won ($1.07 billion) in the year ending June 30, almost a threefold increase from 2011.
FSS said that the figure excludes six newly established savings banks.
Of the tallied savings banks, 26 have suffered net losses for two consecutive years, while 10 had a negative net worth. In addition, 43 savings banks, or 46.2 percent of the total, posted operating losses during the period.
The savings banks that registered the biggest losses were those that saw their parent companies suspended by the government in May so they could be put under the care of Korea Depository Insurance Corporation, a state-run debt-clearer.
Jinheung, Gyounggi Solomon, Youngnam, three affiliates of Korea Savings Bank, posted a loss of 558 billion won over the period, while Tomato 2 Mutual Savings Bank, which falls under the umbrella of Tomato Savings Bank, marked a deficit of 200 billion won.
Meanwhile, the affiliates of Hyundai Swiss Savings Bank reported a combined net loss of 99.7 billion won for the year, FSS data showed.
The surge in losses came after savings banks extended excessive loans to construction companies for property project financing. As the local real estate market has been hit by falling housing prices, tainted real estate lending began to pile up, threatening the financial health of the banks.
The ratio of loans classified as substandard or below for the savings banks, meaning those overdue for at least three months, rose to 20 percent from 19.7 percent, according to the data.
The government requires savings banks to have a Bank for International Settlements (BIS) capital adequacy ratio of 5 percent or higher. The BIS capital adequacy ratio is an internationally recognized measure of bank solvency.
If the savings bank does not meet this 5 percent minimum threshold, the government takes prompt corrective action. If the ratio is below 1.5 percent and has negative net worth, the government suspends the operations of the troubled bank.
However, 13 savings banks were found to have capital adequacy ratios below 5 percent as of June, with 11 being subject to liquidation as their ratios were less than 1 percent, according to FSS data.
The agency said that among the 13, Jinheung, Woori, Tomato 2, Gyounggi, O2 and Hyundai Swiss are currently managed by Korea Depository Insurance Corporation, while Samil, Union and Sejong have recently secured a ratio of 5 percent following capital injections after June 30.
The remaining four, Shilla, W, Seoul and Golden Bridge, are now selling off their assets or preparing for capital increases from their largest shareholders, the FSS said.
Industry insiders say that three to four savings banks might face suspensions next year, but government officials hinted that no such action will be taken this year.
“We will carry out inspections to see if they can meet the required level [in terms of their capital adequacy ratios],” said Ahn Jong-shik, head of FSS’unit dealing with the supervision of the savings banks.
“But it will take several weeks to do this, and as other administrative processes require nearly a month, it’s unlikely any of the savings banks will have to shut up shop this year.”
Ahn said that, based on how they perform in fiscal 2011, the FSS plans to map out follow-up steps in a bid to push those ailing savings banks to ensure more capital stay afloat.?
Last year, the Financial Services Commission suspended the operations of 20 savings banks with insufficient assets.
By Lim Mi-jin, Joo Kyung-don [firstname.lastname@example.org]
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