Savings banks to suffer additional losses from sour PF loans

South Korean savings banks are expected to suffer additional losses of around 3 trillion won ($2.8 billion) from soured project financing (PF) loans, a report showed Monday.

The local savings bank industry has to additionally set aside reserves totaling 2.98 trillion won in a bid to cover its bad PF loans, according to the report by Rep. Park Sun-sook of the main opposition Democratic Party.

The figure accounts for 61 percent of the industry's 4.9 trillion won equity capital as of end-June.

The report, which analyzed three on-site inspections conducted since September 2008, highlighted the government's incompetency in discerning viable and non-viable players.

In 2010, the financial regulator said five ailing savings banks would be viable if their sour PF loans were cleared. However, three of those five players were suspended despite the government's purchase of their bad debts, due mainly to deteriorating asset quality, the report said.

The report comes amid growing concerns that a slew of savings banks will face business suspensions later this year.

The financial regulator is set to complete its inspection of 85 savings banks in September, with a focus on their capital adequacy ratios stipulated by the Bank for International Settlement (BIS) standards.

The watchdog had said it plans to inject public funds into viable players, but may suspend savings banks with poor asset qualities.

The government has suspended operations of nine savings banks this year in an effort to revamp the ailing sector and prevent its repercussions from impacting the local financial industry.