Kim warns savings banks

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Kim warns savings banks

More savings banks may be suspended if the financial regulator considers them financially unsound, Kim Seok-dong, chairman of the Financial Services Commission (FSC), said yesterday.

Kim’s remarks came on the first day of the National Assembly’s inspection of the financial regulator.

“The FSC will look for any signs of [ailing savings banks] in advance and give them an opportunity to normalize their operations of their own accord by seeking capital increases or mergers and acquisitions,” Kim said. “But if they have problems doing that, the financial regulator will swiftly carry out restructurings in accordance with the law.”

The FSC suspended the operations of 20 debt-ridden savings banks from last year to this May. Together, they account for 38 percent of all assets held by the nation’s savings banks.

Forty-three of the 93 savings banks posted losses for fiscal 2011. According to data provided by the Financial Supervisory Service last week, their combined net loss hit 1.16 trillion won ($1.04 billion) for the year ending in June, marking almost a three-fold increase from the previous year’s losses.

There have been increasing calls for a quick overhaul of ailing industry players to avoid another industry scandal as delinquent loans now stand at an average rate of 21.3 percent.

Kim said lenders must take their fair share of blame for the growing number of so-called “house poor,” or those people who find most of their wealth tied up in repaying mortgages and interest rates, meaning they lack sufficient disposable income to cover the costs of daily necessities.

He said the financial sector bears some responsibility for the intensifying trend, but clarified his opposition to moves by politicians to devote more of taxpayers’ money to supporting them.

“We haven’t yet reached a situation where the government needs to inject more public funds to rescue the house poor. This is a matter that banks and debtors first need to figure out,” Kim said. “Public funds get injected when the government adopts certain contingency plans. If the situation worsens, we may explore this option.”

To help ease Korea’s mounting household debt, Kim said he will encourage more financial institutions to voluntarily adopt pre-workout programs designed to help delinquent mortgage holders by lowering the interest rates on their loans and allowing them to delay their repayments.

“It’s highly likely the quality of household debt could deteriorate given the size of this in relation to the size of the economy and income levels, as well as the sluggish state of the real estate market,” Kim said. “The FSC will work closely with the Bank of Korea and related organizations to address the issue.”

Meanwhile, lawmakers criticized Standard Chartered Korea for providing 83 percent of its net profit from 2011, or 240 billion won ($215.81 million), to its shareholders in the form of dividends. But Richard Hill, the bank’s CEO, said shareholders deserved the returns for allowing Standard Chartered to invest 6.1 trillion won in Korea since it acquired Korea First Bank in 2005.

By Kim Mi-ju []

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