The decision came a month after the FSC suspended a smaller player, Samhwa Mutual Savings Bank, as part of its efforts to weed out unviable savings banks and restructure the ailing sector.

   Daejeon Mutual Savings Bank had negative capital with its liabilities exceeding assets by 32.3 billion won as of the end of 2010, the FSC said in a statement. Its capital adequacy ratio, the key measure of capital strength, was at minus-3.18 percent as of the end of last year, far lower than the minimum regulatory level of 1 percent, the FSC said.

   Busan Savings Bank's liabilities exceeded its assets by 21.6 billion won (US$19.4 million) as of end-December, with its capital adequacy ratio standing at 5.13 percent, according to the regulator.

   "Daejeon bank is in a situation in which it cannot respond to depositors' withdrawal demand due to a liquidity shortage triggered by a recent run of deposit withdrawal," the FSC said.

   The regulator also suspended the Busan-based parent firm because the suspension of Daejeon Mutual Savings Bank could have led to a bank run at the parent bank, it said.

   During the six-month suspension, the Financial Supervisory Service, the executive body of the FSC, will examine both banks to determine whether to allow business resumption.

   Meanwhile, the FSS will look into the other three savings bank affiliated with the suspended Busan Savings Bank -- Busan II Savings Bank, Jungang Busan Savings Bank and Jeonju Savings Bank --  to gauge how the latest suspension affects their financial health, according to the FSC statement.

   The FSC also said five other savings banks have been put on a watch list after being found to have capital adequacy ratios below

5 percent.

   "Except the eight savings banks under scrutiny, the remaining 94 savings bank players won't face business suspension during the first half of this year," FSC Chairman Kim Seok-dong said in a press briefing.

   Savings banks' troubled PF loans came to a head as a property market slump that started in the 2008 global financial crisis sharply drove up defaults on such loans backed by construction projects.

  Savings banks, which, unlike commercial banks, are not allowed to sell financial products primarily other than loans, have heavily issued PF loans since mid-2000 to boost sales and profits.

   The FSC is planning to pool nearly 20 trillion won in aid funds from the broader financial sector and taxpayers' money in order to inject emergency funds into the liquidity-squeezed savings banks and induce mergers and acquisitions.

(Yonhap News)