More than one-third of South Korea’s savings banks have eroded capital due to large bad debts, data showed Tuesday, raising concerns over their financial health and possible bankruptcies.
The data comes after the Financial Services Commission, the country’s financial watchdog, suspended operations of 16 savings banks this year, citing their insufficient liquidity.
A total of 33, or 37 percent, of 89 local savings banks suffer from capital erosion, according to Yonhap News Agency’s analysis of their audit reports and regulatory filings. The tally does not include the suspended players.
Capital erosion refers to a decrease in the actual worth of business equity.
According to the analysis, six of the 33 ailing savings banks had completely eroded their capital and were fully relying on liabilities.
The capital erosion comes on the heels of the ailing sector’s deepening losses. The combined net loss of the 89 savings banks reached 365.3 billion won ($304.5 million) in fiscal 2010, growing more than four-fold from the previous year’s 82.1 billion won loss.
Meanwhile, the Financial Supervisory Service said the net loss and capital erosion came as savings banks sharply beefed up their allowances for bad debts following the watchdog’s inspection of the savings bank industry.
Amid lingering concerns over the savings bank sector, South Korea has been trying to relieve uneasy investors.
FSC Chairman Kim Seok-dong said last month that savings banks only account for 2.4 percent of the local financial sector as part of efforts to quell worries the turmoil will impact the broader financial market.
