Regulator to force nonviable institutions out of market


Starting Tuesday, the government will conduct another round of regulatory examinations on the overall savings banking industry tarnished by involvement of some banks in a corruption scandal.

The Financial Services Commission said Monday that it would make inquiries into 85 out of 98 savings banks for two months to normalize the debt-saddled sector.

FSC Chairman Kim Seok-dong stressed that the number of probe target ― set at 85 companies ― includes all players in the local market.

“They are all savings banks if we exclude the 10 companies which underwent a probe in the first quarter, two companies owned by the state-run Korea Deposit Insurance Corp., and one absorbed into Woori Financial Group,” he said at a news conference.

“To ease off market woes, the authorities will induce voluntary efforts by conducting a package examination into their management status,” he said.

Though the regulatory body plans to inject taxpayers’ money into relatively viable companies, it could choose to halt operations of several companies in a critical financial state, according to FSC officials.

About 20 teams composed of regulatory inspectors and public accountants will take on four or five savings banks.

They will assess their 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 meet following instructions from the FSC.

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

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

Regulatory sanctions including suspension against several nonviable companies will likely be handed down at the end of September or October.

Notably, the savings banking industry welcomed the regulatory move.

“The FSC’s announcement is expected to resolve the ongoing uncertainty in the market, a staffer at a savings bank said. “Fast action is better as we are destined to face a massive restructuring.”

A savings bank employee said the measures will eventually stabilize the industry thanks to the coming comprehensive probe and assessment.

FSC officials are set to take stern action against major shareholders of savings banks for illegal lending and excessive risk taking.

“Main shareholders engaged in unfair practices will face strict sanctions,” a senior official said. “We plan to review major shareholders’ eligibility regularly and drive out of the market those failing to meet requirements.”

To protect the rights of savings banks customers, the regulatory body will also enhance sanctions against businesses committing false or delayed stock disclosures, he said.

Since the 2008 global financial crisis, many savings banks saw their capital health tumble due to their massive lending to builders who failed to pay back loans because of a slumping property market.

The FSC has halted operations of eight savings banks since January.

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