Regulators suspend four savings banks

Solomon, Korea face delisting from bourse


The Financial Services Commission said Sunday that it has decided to suspend operations of four mutual savings banks in Korea over the next six months.

The four secondary financial firms are Solomon Savings Bank, Korea Savings Bank, Mirae Savings Bank and Hanju Savings Bank, the FSC said in a press release.

Of six banks the regulatory body has investigated since September last year, the FSC shortlisted the four as distressed banks with weak financials.

Only Solomon had a Bank for International Settlements ratio of over 1 percent, at 4.35 percent. However, this is still below the standard 5 percent recommended for savings banks. Commercial banks are generally required to have their BIS ratio above 8 to 10 percent to show financial soundness.

The rest of the three had a capital adequacy ratio of below one percent, according to the regulatory body. Hanju’s BIS ratio stood at minus 37.32 percent, the lowest among the four, followed by Mirae’s minus 16.2 percent and Korea’s minus 1.36 percent.

Also, all four banks’ debt exceeded their net assets, which clearly had them exposed to default risks.

The FSC said that it would give the four banks 45 days to improve their capital bases by issuing new shares and to raise their capital adequacy ratio to above 5 percent.

Solomon and Korea savings banks are likely to be de-listed from the benchmark KOSPI should they fail to meet such BIS ratio requirements within the timeframe, according to media reports.

The four will also have to immediately appoint new managers, while dismissing their executives for their negligence to insure rapid normalization of operations within six months.

Another option open to the four is to sell to a third party, or have the state-owned Korea Deposit Insurance Corp’s bridge bank acquire the banks’ distressed assets for restructuring, should they fail to meet the deadline.

The FSC noted that consumers can claim deposits, including interest, of up to 50 million won, insured by KDIC, in a bid to fend off a bank run.

By Park Hyong-ki (hkp@heraldcorp.com)