Speculation is growing in the market that more savings banks could be subject to suspension of operations in the coming months as policymakers appear poised to raise the target for state funds to be injected to restructure the ailing secondary banking sector.
The Financial Services Commission had previously planned to pour in about 15 trillion won ($12.8 billion) into 16 ailing savings banks, but the worse-than-expected level of insolvency in the sector is now expected to require more state funds.
The financial regulator’s earlier plan was to secure 15 trillion won by 2026 through a special account for deposit insurance premiums gathered by the state-run Korea Deposit Insurance Corp. KDIC.
Now under a revised plan, the FSC is considering operating the KDIC special account by 2031 to increase the funds.
But FSC officials downplayed the speculation that the regulator will be halting the business of more savings banks. They said extension of the special account is to stay prepared for a worst-case scenario in the coming years.
“As long as there is no unexpected factor, we have no plan to suspend more banks this year,” he said.
This year, the FSC suspended two debt-saddled banks in the first half and in September.
The nation’s chief financial continued to strive to calm jitters among savings banks’ clients amid the growing fears of a bank run.
The FSC has come under spiraling criticism for apparently pressuring major financial groups to take over distressed savings banks.
Bankers expressed skepticism over the financial watchdog’s move after it unveiled plans to put ailing savings banks up for auction and suspend operations at some unviable institutions.
They are concerned that banking groups could see their financial soundness weaken and their brand value deteriorate with the planned acquisitions.
“It seems that several financial groups have agreed to the takeover scheme against their will,” said a senior official of a major commercial bank.
He said Korean regulators should stop twisting the arms of commercial banks.
“In the case of Citigroup, U.S. regulators instructed the financial group not to increase its asset scale any more for the sake of its financial health.”
Korea was chair of the Group of 20 Summit last year, under which members agreed to strengthen oversight of large-sized financial companies.
By Kim Yon-se (
kys@heraldcorp.com)
