Watchdog halts operations of troubled savings bank

South Korea's financial regulator on Friday suspended operations of an embattled savings bank as it accelerates efforts to restructure the savings banks industry distressed with souring construction loans.

   The Financial Services Commission (FSC) said it will suspend Seoul-based Samhwa Mutual Savings Bank for six months for failing to meet regulatory capital requirements.

   As of the end of July, the savings bank's debts exceeded assets by 50.4 billion won (US$45.2 million) and its capital adequacy ratio stayed at minus 1.42 percent as of end-June, compared with the mandated regulatory level of 1 percent, the FSC said.

   The suspension is the first of its kind since the FSC halted business of Jeonil Mutual Savings Bank, a provincial industry player, in December 2009 amid the global financial crisis.

   Samhwa Mutual Savings Bank will be forced to be sold to other financial institutions unless it normalizes its capital strength in one month, the regulator said.

   The FSC also noted it will pick the preferred bidder to buy the affected savings bank through an auction by mid-February as part of preparatory actions to find a new owner, in case Samhwa Mutual Savings Bank fails normalization.

   "The decision to suspend the bank was made to minimize losses in the country's deposit insurance fund," the FSC said, adding the action will have only limited impact on the financial sector.

   The suspended savings bank's total assets reached 1.4 trillion won as of end-June, accounting for only 1.6 percent of the total assets held by 105 local peers, it added.

   The suspension comes as the financial regulator steps up actions to weed out non-viable savings banks through consolidations with bigger commercial banks or regulator-led restructuring.

   Concerns over rocketing bad debts in savings banks, mostly coming from their construction project financing loans, have been cited as the top risk factor to the local financial sector.

   Amid rising defaults by construction industry borrowers, the country's four biggest banking groups, including Woori Finance Holdings Co., expressed their intention to take over one or two troubled savings banks. (Yonhap News)