South Korea’s government yesterday ordered seven savings banks to suspend operations because of their poor financial condition caused by heavy investment in risky property projects at home and abroad.
The decision came two months after Seoul banking regulators launched investigations into scores of financially-troubled savings banks hit by the market downturn amid the global economic crisis.
The Financial Supervisory Commission (FSC) has ordered the banks to suspend business for six months, urging the management to improve their financial health by issuing more shares or selling assets.
The FSC said the seven banks’ capital adequacy ratios — a measure of reserves against assets at risk stipulated by the Bank for International Settlements standards — were below 1 percent, far below a regulatory limit of 5 percent.
Six banks, including Tomato Savings Bank, the nation’s number two savings banks with total assets of 4.4 trillion won (US$3.9 billion) at the end of last year, also saw the amount of their debts exceed assets, it said.
“If managements fail to raise the ratios above five percent within the next 45 days, the banks will be put up for a sale to a third party,” FSC chairman Kim Seok-dong told reporters.
“The measure ... will help clear up uncertainties on the savings bank industry and help stabilize the market,” Kim said.
He urged customers to act prudently, noting that the government would guarantee up to 50 million won in deposits.
South Korean mutual savings banks, many of which are family-owned, have lured customers with high-rate deposits while offering high-rate loans to those unable to borrow from major banks.
Since earlier this year, the FSC has suspended several mutual savings banks, including Busan Savings Bank, the country’s largest savings bank by assets, after their financial health fell below regulatory requirements.
Prosecutors later charged Busan’s owner family members and executives with embezzlement and fraud, saying they had invested in extremely risky property developments and siphoned off funds for personal use or for bribing state officials to avoid punishment.