Deposit withdrawals from secondary banks sharply reduce as officials work to calm market
The government and financial institutions were trying to calm savings banks’ jitters on Tuesday, pledging fresh support for troubled secondary banks hit by toxic property loans.
Concerns over an industry crisis showed signs of subsiding as deposit withdrawals across the country nearly halved from the previous day.
Financial Services Commission Chairman Kim Seok-dong reiterated his pledge to supply liquidity and buy distressed property-linked loans.
He pledged to advance government support for banks and clients during a meeting with related agencies in the southern city of Mokpo. He discussed measures to bolster the ailing savings banks sector and fend off a bank run.
The authority last week suspended the operations of six savings banks ― including the country’s largest in terms of assets, the Busan Savings Bank ― due to insufficient liquidity.
The government plans to pool nearly 20 trillion won in aid funds to back up its restructuring efforts that include weeding out unviable savings banks and inducing consolidation among savings banks with bigger commercial banks.
Shareholders of savings banks also promised to inject fresh funds.
Woori Finance Holdings Co., Korea’s second-largest banking group by assets, said that it will provide emergency funds to a savings bank to help bolster its liquidity.
Kyongnam Bank, a regional bank affiliate of Woori Finance, will provide 50.4 billion won ($44.8 million) to Woolee Savings Bank through buying up the same value of assets held by the liquidity-squeezed savings bank based in the port city of Busan, the group said in a statement.
The measure is aimed to “help relieve the savings bank’s liquidity shortage triggered by suspensions of several savings banks in the Busan region,” Woori Finance said in the statement.
Woori Finance is also considering injecting money into other savings banks, it said.
Woori Finance was selected last week as the final bidder to buy up suspended Samhwa, and other banking groups are gearing to take over troubled savings banks in a bid to help the government’s efforts to restructure the ailing savings bank industry.
Major shareholders of savings banks are also scrambling to shore up their own balance sheets and capital strength by raising capital and bolstering liquidity, according to industry sources.
The country’s financial regulator said massive deposit withdrawals, sparked by last week’s suspension decisions, should soon lose steam.
The Financial Supervisory Service, the FSC’s executive body, said a total of 490 billion won in deposits were withdrawn on depositors’ demands on Monday, but the withdrawal demand is expected to fall off on Tuesday, and panic will calm down.
“Savings bank depositors’ panic seems to have lost traction, and the size of deposit withdrawal is expected to slow down,” an FSS official said.
Global credit appraiser Moody’s Investor Service said that the asset problem roiling the savings bank sector will not likely be transmitted to commercial banks since savings banks represent only a small segment of the entire financial sector,
“Despite the likelihood of more MSB failures due to asset quality problems, these events are not likely to pose a systemic threat to nor jeopardize the creditworthiness of Moody’s-rated Korean commercial banks,” Young-il Choi, a vice president of Moody’s, said in a report.
Different customer bases between savings and commercial banks reduce room for contagion and far higher transparency standards among commercial banks also help them avoid fallout from the savings bank issue, Choi noted.