Financial regulators plan to allow savings banks which meet requirements for financial soundness to operate an installment financing business unit.

The regulatory decision comes under the Financial Services Commission’s strong commitment to reviving the distressed savings banking industry.

Savings banks are required to satisfy two requirements to open an installment financing unit: They should see their BIS capital adequacy ratio reach at least 10 percent and see the ratio of substandard loans not surpass 8 percent.

“We are striving to raise the competitiveness of the savings banking sector,” an FSC official told a news briefing.

To secure competitiveness, the regulatory body will instruct them to enhance the micro-loan business to the lower-income bracket and small- and mid-sized enterprises.

“It will be important for the industry to expand stable business environment and secure more income sources, rather than seeking only profitability,” the official said.

In addition, it is urgent for savings banks to revamp weak governance structure while several of them have been hit by ethical breach of their management and major shareholders.

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, said an official of the Financial Supervisory Service.

He said even distressed players will eventually see business normalization in the coming months or years following a mass restructuring under the guidance of financial authorities.

“We could expect that savings banks acquired by major financial groups or securities firms will play the role of lending to lower income brackets.”

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