The local savings bank industry appears to be getting back on its feet after suffering from a chain of bankruptcies in 2011, according to industry sources.

According to the Financial Supervisory Service, the 87 savings banks operating in Korea recorded total net profits of 23.8 billion won ($23 million) in the second quarter.

It was their first collective profit since 2008.

Also, 18 of the banks managed to stay in the black for six consecutive years despite most of them being small banks with assets of 500 billion won or less.

The improvement was greater in independent savings banks than those affiliated with financial groups or major banks.

“All relevant indexes, including net profits and BIS ratios, have improved during the recent fiscal years,” said Kim Jin-soo, assistant deputy governor of the FSS.

As their main strategy for improving financial soundness, local savings banks have largely focused on building relationships with their customers, while at the same time tightening the screening guidelines to cut down on bad loans, according to the FSS and the Korea Federation of Savings Banks.

“Savings bank officials double-checked the collateral and minimized credit limits while also adopting a conservative loan approval policy,” said an FSB official. “But they also are trying to be more flexible and offer more loans to low-grade borrowers who have proven their credibility in previous financial transactions.”

All this signals a significant change from a few years back, when savings banks were on the brink of collective demise. Well-known banks such as Samhwa Savings Bank became weighed down by bad loans and were forced out of business. The government eventually stepped in to restructure the industry.

The chiefs of the fallen banks were indicted for mismanagement, and the banks were put on the selling block.

The total number of savings banks fell to 87 as of the end of June, down from 105 in 2010, according to FSS figures.

Those that survived have found themselves with new owners and new regulations. At the same time, deregulation is also happening. Recently, the government decided to allow savings banks to issue credit cards.

In the meantime, foreign capital is also flowing into the savings bank industry.

SBI Holdings, Japan’s largest financial group, established SBI Savings Bank last year by acquiring Swiss Savings Bank and other smaller units.

“There has been resentment against the Japanese ownership, but what counts is that the group purchased the fallen savings bank without the aid of public funds or debts,” said an official of SBI Savings Bank.

By Bae Hyun-jung (tellme@heraldcorp.com)