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Reins tightened on savings banks

Regulator pushes banks to improve capital adequacy ratios

Korea’s financial regulator said Monday it will further toughen the standards used to assess savings banks’ fiscal soundness in a bid to accelerate the cleanup of the troubled sector.

“The planned assessment of 85 savings banks has started, and banks with BIS capital ratio of less than 8 percent as of late June are now required to submit self-rescue plans to improve the ratio,” said the Financial Supervisory Service.

The capital adequacy ratio set by the Bank for International Settlement is a key measure of the financial soundness of banks. The country’s top financial watchdog recently said it would regard savings banks with a BIS ratio above 5 percent as viable players.

But the FSS’ move Monday marked a noticeable shortening the yardstick, suggesting that the battered savings banks may face tougher challenges than previously estimated. The average capital ratio of 98 savings banks in late 2010 was 9.83 percent and if the FSS holds to its pledge about half of the savings banks will have to draw up self-improvement plans.

The regulator also issued very specific measures that could be included in the self-rescue plans. Under the proposals, savings banks should unload real estate properties, sell off unprofitable subsidiaries, or draw fresh funding from the personal assets of their major shareholders.

Given that the domestic mergers and acquisitions market has been in the doldrums, savings banks might be forced to ask their major shareholders to pitch in to shore up their capital ratio.

However, it remains unclear whether major shareholders will be persuaded to use their personal assets to help out the savings banks.

What’s certain, though, is that the FSS is trying to make sure the latest examination into savings banks will follow rigorous standards to dispel skepticism about the regulatory body, which has suffered corruption scandals involving savings banks.

In the wake of the 2008 global financial meltdown, local savings banks saw their capital health deteriorate rapidly, hurt by soured loans to builders when the real estate market became stuck in the protracted slump.

The FSS has dispatched a total of 338 inspectors and public accountants to 85 savings banks for a thorough inspection that will run through end-August.

By Yang Sung-jin  (