FSS warns that the banks may be subject to business suspension


At least 10 savings banks have been on the close watch list of financial regulators for their poor financial statements, officials said Monday.

As a “prior warning” to the industry, the Financial Supervisory Service has reportedly informed 12 distressed savings banks that they may soon face business suspension.

The regulator found that 10 of the 12 savings banks saw their BIS capital adequacy ratio stay below 1 percent, demonstrating their critically weak financial status.

The other two banks’ total debts surpass their total assets.

Regulatory terms for business suspension for the savings banking sector include a BIS capital adequacy ratio of less than 1 percent and excessive debts despite BIS ratio of above 1 percent.

While the 12 banks are potential candidates for business suspension, the FSS has instructed them to submit plans for management normalization as soon as possible.

In its efforts to revamp the industry tarnished by the corruption scandals involving some banks, the FSS has probed 85 savings banks nationwide.

The regulator is poised to announce the inspection results and appropriate measures at the end of September or in October.

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

The authorities said that 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 business.

Regulatory officials evaluate companies with a BIS ratio surpassing 5 percent as viable players.

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

The savings banking industry was damaged by a sharp rise in defaults on construction project-related financing loans caused by the property market slump during the 2008 global financial crisis.

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

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