FSC to auction off halted savings banks

Authorities say about half of 85 savings banks suffer from financial difficulties


Financial authorities are set to put debt-ridden savings banks up for auction to find preferred bidders among bigger financial companies, following a former case during the first half.

As an initial step, the Financial Services Commission is expected to promote active participation from major financial groups in the coming mergers and acquisitions.

FSC Chairman Kim Seok-dong is scheduled to meet CEOs of commercial banks in downtown Seoul on Thursday.

The two parties will discuss pending issues including the volatile foreign exchange market, risky household loans, and supporting small- and mid-sized enterprises, the FSC said in a statement.

Apart from the issues, a bank research analyst said, there is a possibility that Kim will call for them to pay interest in ailing savings banks in terms of M&A target.

“The chairman’s instruction, if any, could be directed via low-key talks,” he said. “I believe the FSC would try to check the intention of financial groups before embarking on M&A process for the suspended savings banks.”

Commercial banks such as Kookmin, Woori, Shinhan and Hana, are flagship units of four major financial groups.

“After examining their willingness, the authorities will set the timing for conducting due diligence on the savings banks and launch the official bidding process,” the analyst predicted.

On Sept. 18, the FSC halted seven saving banks ― Tomato, Jeil, Jeil 2, Prime, Daeyeong, Ace and Parangsae ― for six months.

While any of the seven lenders could be allowed to resume their operations when they see business normalization within a certain period, the state-run Korea Deposit Insurance Corp. will launch the sale process simultaneously, a market observer said.

He forecast that regulatory officials will designate the seven suspended players as “insolvent financial companies” and reach a consensus that an enforced sale process is inevitable in the coming weeks or months.

Aside from financial groups and commercial banks, there have been several brokerage firms which expressed interest in the takeover of savings banks.

Formerly, Woori Financial Group acquired Samhwa Mutual Savings Bank and Daishin Securities took over three savings banks as a package.

Meanwhile, authorities have found that about half of the 85 savings banks are suffering from financial difficulties.

FSC officials said only around 40 players have secured superior financial soundness.

The authorities regard a savings bank whose BIS capital adequacy ratio surpasses 10 percent as financial healthy one. In particular, Star, Hanshin, Boorim and Osung saw the BIS ratio exceed 20 percent.

Companies with a relatively weak BIS ratio ― between 5 and 10 percent ― included Sejong, Smart. MS, Jinheung, HK, Moa.

Meanwhile, 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 used to restructure the ailing secondary banking sector.

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