South Korea’s financial watchdog said on Wednesday it has requested the government to inject 500 billion won ($473 million) in a special fund aimed at overhauling the country’s ailing savings bank sector.

Local savings banks have been suffering from a deterioration of asset quality due to a pile-up of sour loans, stemming from a rise in project financing loan defaults. The debacle had prompted the government to suspend business operations of eight savings banks earlier this year.

The Financial Services Commission (FSC) said it asked the finance ministry to allot 500 billion won in taxpayer money for the savings bank overhaul fund, which is managed by the Korea Deposit Insurance Corp.

The request, which was made in June, is subject to governmental and parliamentary deliberation. The budget is scheduled to be submitted to parliament in early October.

The special fund, which was established in March, is part of the government’s efforts to prop up the struggling sector. Up to 15 trillion won will be funded until 2026 to help suspended savings banks pay for deposit withdrawals and cover asset deficits. The remaining 14.5 trillion of the fund is expected to be financed via KDIC’s bond issuances and insurance premiums.

According to the FSC, around 8 trillion won of the fund is currently usable. The regulator plans to push to delay the 2026 deadline if additional funding is required for the overhaul.

Last month, the government introduced a comprehensive measure for the savings bank sector, which includes plans to insert public funds to viable savings banks. The eligible players will be decided in late September, when the FSC completes an inspection of 85 savings banks. 

(Yonhap News)