Savings banks to tap public funds soon

Suspended banks are expected to be auctioned off in the coming months


Financial regulators will inject taxpayers’ money, projected at about 500 billion won ($454 million), into the distressed savings banking sector by the end of this year.

Under the policy of the Financial Services Commission, the Korea Finance Corp. said it would receive applications for the public funds from savings banks for a month.

Banks whose financial status is relatively good will be eligible. Those suspended by financial regulators will be excluded.

This will be the first time Korean taxpayers’ money will be injected into “viable” financial companies passing the regulatory test for soundness.

A banner reading “Tomato 2 Savings Bank Is Safe” on a wall of the bank’s branch in Myeong-dong, central Seoul. The bank’s parent company is Tomato Savings Bank, whose business operation was suspended Sunday. (Ahn Hoon/The Korea Herald)

Since the 1997 Asian financial crisis, trillions of won in public funds has been poured into “nonviable” savings banks.

The FSC says it is urgent for the government rescue the overall savings banking industry as many of them are suffering cash flow problems since the 2008 global crisis.

Several months ago, the regulator called for the Finance Ministry to allocate 500 billion won as public funds to restructure the industry.

To enjoy the taxpayers’ money, applicants should see their BIS capital adequacy ratio reach at least 5 percent.

While the FSC has found that about 70 out of 98 savings banks nationwide meet that requirement, the regulatory target involves helping them reach a ratio of 10 percent using public funds.

Regulators evaluate savings banks with a BIS ratio surpassing 5 percent as viable.

Those with a BIS ratio between 1 and 5 percent have been given a grace period ― with a maximum of one year ― to normalize their businesses as soon as possible.

Most banks whose capital adequacy ratio has not reached 1 percent had their operations suspended as they failed to meet following instructions from regulators.

Most of the suspended banks are expected to be auctioned off in the coming months. The FSC has been promoting larger financial companies, including four major financial groups, to acquire the ailing banks.

The accumulated public funds plowed into the savings bank industry since the 1997 Asian financial crisis are expected to exceed 20 trillion won by the end of 2011.

The combined funds amounted to 17.28 trillion won as of November 2010. More than 60 percent of that was allocated through taxes.

Though the FSC suspended the operations of seven more savings banks last Sunday, fears of a run on the secondary banking industry appeared curbed as of Tuesday.

By Kim Yon-se (kys@heraldcorp.com)