Imminent suspension prompts runs on big savings banks

By Korea Herald
  • Published : May 4, 2012 - 19:47
  • Updated : May 4, 2012 - 19:47
Some of the nation’s largest mutual savings banks showed signs of bank runs on Friday as the Financial Supervisory Service is set to suspend their operations as early as Sunday.

The top financial regulator is expected to suspend the business of three of the 10 biggest savings banks and a smaller bank, the combined assets of which hover at 10 trillion won ($8.84 billion).

Banking sources said the financial authorities already put the computer network systems of the four troubled lenders under their control and dispatched inspectors to them in an effort to minimize the effects on financial markets. 
Depositors line up Friday morning at a savings bank’s headquarters in Daechi-dong, southeastern Seoul, to withdraw their money ahead of the government’s suspension of insolvent banks. (Kim Myung-sub/The Korea Herald)

After being mentioned in the local press as one of possible savings banks facing suspension, Solomon Savings Bank saw some 50 billion won in deposits slip out on Thursday, which is about five to six times larger than usual. The lender is the top player in the secondary banking sector in terms of assets.

About 100 depositors lined up in front of a Solomon branch in Daechi-dong, southeastern Seoul, before the bank opened on Friday to withdraw their money.

The government last year suspended the operations of 16 insolvent savings banks, and gave a grace period to five others to improve their financial health. Four of them have reportedly failed to meet FSS conditions for normalization of business.

The regulator asked the prosecution to investigate four debt-ridden savings banks for alleged embezzlement or breach of duties. An official at the prosecution said the probe will begin once the suspended banks are named.

The Financial Services Commission, the decision-making panel of the FSS, plans to hold a management evaluation committee meeting as early as Saturday to determine which savings banks should be shut down.

Institutions with Bank for International Settlements ratios of under 5 percent or with more liabilities than assets are subject to suspension.

The imminent suspension is expected to cause damages worth nearly 600 billion won.

The current law guarantees only deposits of up to 50 million won including the interest.

According to the Korea Deposit Insurance Corporation, about 14,000 people have deposits over 50 million won at the five blacklisted savings banks, and many of them also have loans from the secondary lenders.

The sum of deposits over 50 million won minus their loans amounts to 78.9 billion won, the KDIC said.

The bigger problem is that subordinated debts, which rank after other debts in case of the bank’s liquidation or bankruptcy, at the four troubled savings banks amount to 500 billion won.

Most of the suspended banks are expected to be auctioned off in the coming months. The FSC has been encouraging larger financial companies, including four major financial groups, to acquire the ailing banks.

By Kim So-hyun (