FSS winds up inspection of 85 secondary banking institutions


Financial regulators are expected to issue another round of sanctions against a group of savings banks after completing an intensive inquiry into the secondary banking industry.

Under its policy of revamping the industry tarnished by the corruption scandal involving some banks. The Financial Supervisory Service has probed 85 savings banks in coordination with public accountants.

The regulatory body is poised to announce the inspection results and appropriate measures at the end of September or October, FSS officials said.

Market observers predict that about 10 out of the 85 savings banks could be subject to regulatory sanctions including business suspension.

FSS officials had also said that they could choose to halt operations of several non-viable companies in a critical financial state.

The authorities had said they would inject taxpayers’ money into relatively viable savings banks.

The inspectors assessed banks’ financial soundness by looking into key indices such as BIS capital adequacy ratio and debt-to-equity capital ratio.

Companies whose BIS capital adequacy ratio stays under 1 percent could be subject to business suspension if they fail to follow instructions from the FSS.

Those with a BIS ratio of between 1 and 5 percent will be given a grace period ― a maximum of one year ― to normalize their businesses.

The FSS evaluates companies with a BIS ratio surpassing 5 percent as viable players.

The authorities plan to provide a nearly 20 trillion won ($18 billion) credit line ― including tax payers’ money ― in support of other viable institutions.

The savings banking industry saw their troubled construction project-related financing loans come to a head as a property market slump that started during the 2008 global financial crisis sharply drove up defaults on such loans.

Since the third quarter of 2010, the FSS signed memoranda of understanding with ailing savings banks to beef up their financial soundness.

They were required in the MOUs to write off soured construction project-related loans ― also known as project financing ― and raise more capital as a buffer against possible loan losses.

But most of them failed to reduce their bad PF loans, which have been blamed as the primary risk factor.

Though the savings banking industry has been severely damaged due to construction-related toxic loans, there are still many savings banks with normal financial soundness, an FSS official stressed.

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