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Revised savings bank rules to hit shareholders

New regulations mean major stakeholders face fines if banks take too many lending risks


The financial regulator plans to add new clauses to regulations on savings banks to enhance supervision and punish large shareholders for risky behavior, sources said Sunday.

The Financial Supervisory Commission is rewriting rules governing the country’s embattled savings banks suffering the result of their investment in high-return, high-risk construction projects. The outlines are likely to be announced this week.

The updated rules will slap fines on major shareholders for imprudent lending practices leading to credit crisis. The current rules subject only bank management to fines worth 10 to 20 percent of inappropriate loans made.

“We will announce a package of measures to normalize business operations of savings banks in trouble,” FSC Chairman Kim Seok-dong said at a government meeting Friday.
Busan Savings Bank customers stage a rally urging the authorities to enforce measures to compensate their losses outside Busan train station on Saturday. (Yonhap News)
Busan Savings Bank customers stage a rally urging the authorities to enforce measures to compensate their losses outside Busan train station on Saturday. (Yonhap News)

Standards categorizing healthier savings banks entitled to less rigorous lending rules will also be altered.

The FSC currently applies softer lending restrictions on savings banks that retain more than 8 percent equity capital ratio and less than 8 percent bad loan rate as required by the Bank of International Standards.

The lending restrictions on the so-called “8.8 Club” would be tightened to prevent another industry-wide capital shortage.

The regulator also considers making bank auditors accountable should capital ratio fails.

The package of measures is part of the regulator’s plan to reassure investor confidence on the country’s secondary banking sector. It is in regulator’s view that a comprehensive bail-out program is needed with a new set of rules allowing FSC to have a tighter grip on the industry.

The FSC on Feb. 18 suspended Samhwa Mutual Savings Bank for failing to meet the capital requirement. The regulator suspended operation of seven more savings banks since then. They are Busan and Busan II Savings Bank, Daejeon Mutual Savings Bank, Jungang Busan Savings Bank, Jeonju Savings Bank, Bohae Savings Bank and Domin Mutual Savings & Finance.

Customers flocked to the bank’s headquarters to apply for provisional payments of a maximum 15 million won per person, worsening the industry’s cash-strapped situation.

The country’s state-deposit insurer has taken out more than 3 trillion won ($2.69 billion) from commercial banks through open bidding to rescue the savings banks.

The Korea Deposit Insurance Corp. is orchestrating the rescue plan.

The KDIC selected Woori Finance Holdings Co., the second largest banking group by assets, as the preferred bidder for taking over Samhwa Savings Bank.

By Cynthia J. Kim (cynthiak@heraldcorp.com)
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