4 financial groups vie for ailing savings banks

Major financial groups have been in keen competition to take over debt-saddled savings banks whose operations were suspended by regulators for liquidity woes.

The Financial Services Commission has halted operations of seven savings banks since January. Among the potential buyers targeting them are KB Financial, Woori Financial, Shinhan Financial and Hana Financial.

Woori Financial has become the preferred bidder for Samhwa Savings Bank. The four contenders have their eye on six other savings banks.

Woori Financial has already expressed its intention to acquire one or two more savings banks. It plans to merge them with Samhwa Savings Bank to establish a secondary banking unit with assets of about 3 trillion won ($2.65 billion).

It has been rumored that Woori is considering launching talks to take over a subsidiary of the Busan Savings Bank group.

They include Busan Savings Bank, Busan II Savings Bank, Jungang Busan Savings Bank, Daejeon savings bank and Jeonju Savings Bank.

Jungang Busan Savings Bank has been mentioned as the main target of the four financial groups as it is headquartered in Seoul. Its assets and debt came to 846.4 billion won and 828.8 billion won.

Shinhan Financial and Hana Financial, which lost the bidding competition for Samhwa Savings, are mapping out strategies to win the coming bids.

KB Financial, which did not participate in the bidding for Samhwa Savings, is also set to be an active player.

“The process (to take over a savings bank) is under way,” the group’s chairman Euh Yoon-dae said last week.

Regulatory officials of the Financial Supervisory Service expect that KB Financial, which has been evaluated as No. 1 in the local market, would be a competitive bidder for the troubled savings banks.

“It would be a desirable situation if the bidding competition among major financial groups would be fiercer,” an FSS official said.

Should big financial service companies acquire them, anxious sentiment among depositors of the suspended banks could be eased, he said.

Though the seven savings banks saw their asset soundness stay at critically weak level, the situation for buyers is favorable as financial regulators have proposed a method, called purchase and assumption.

Under the P&A, unlike in an ordinary M&A, buyers are entitled to acquire only the viable assets, not all of them, on a selective basis. They are also free of the obligation to retain a large portion of the savings banks’ employees.

Acquirers are likely to hand over the remaining non-viable assets to the state-run Korea Asset Management Corp. Eventually, the government-led restructuring of the secondary banking sector could end up injecting a sizable amount of taxpayers’ money into troubled savings banks.

The financial authority is expected to inject public funds to dispose of nonviable loans via KAMCO.

Savings banks saw their average default rate on soured construction project-related loans -- also known as project financing -- soared to over 10 percent during the fourth quarter of 2010.

Their difficulty was mainly attributable to a rising number of unsold homes and falling housing prices which have dried up builders’ cash flows, derailing construction firms’ repayment of loans.

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