FSS asks prosecutors to probe 4 savings banks

The Financial Supervisory Service recently asked the prosecution to investigate four debt-saddled savings banks for alleged embezzlement or breach of duties, officials said Thursday.

The four troubled savings banks are Solomon, Korea, Hyundai Swiss and Mirae, according to regulatory officials at the FSS.

Solomon Savings Bank is the largest player in the secondary banking sector, and the combined assets of the four lenders hover at 10 trillion won ($8.84 billion).

As the FSS is also considering suspending the operations of several savings banks, there is a possibility that another round of “bank runs” among depositors will occur in the savings bank industry.

The financial regulator is poised to unveil the list of savings banks to be subject to business suspension as early as this Sunday.

This year, the FSS continued to prepare for the third round of restructuring for the savings bank industry, following two earlier cases in the first half and the latter of 2011, respectively.

According to regulatory officials, it is urgent for financial authorities to rescue the overall savings banking industry as many lenders have been suffering cash flow problems since the 2008 global financial crisis.

Last year, the Financial Services Commission, the decision-making body of the FSS, called on the Finance Ministry to allocate 500 billion won in public funds to restructure the industry.

To benefit from the taxpayers’ money, applicants should see their BIS capital adequacy ratio reach at least 5 percent.

While the FSC has found that about 70 out of 98 savings banks nationwide meet that requirement, the regulatory target involves helping them reach a ratio of 10 percent using public funds.

Regulators evaluate savings banks with a BIS ratio surpassing 5 percent as viable.

Those with a BIS ratio between 1 and 5 percent have been given a grace period ― a maximum of one year ― to normalize their businesses as soon as possible.

Most banks whose capital adequacy ratio has not reached 1 percent had their operations suspended as they failed to meet following instructions from regulators.

Most of the suspended banks are expected to be auctioned off in the coming months. The FSC has been encouraging larger financial companies, including four major financial groups, to acquire the ailing banks.

The accumulated public funds plowed into the savings bank industry since the 1997 Asian financial crisis are expected to exceed 20 trillion won by the end of 2011.

The combined funds amounted to 17.28 trillion won as of November 2010. More than 60 percent of that was allocated through taxes.

By Kim Yon-se (kys@heraldcorp.com)