South Korean savings banks' liquidity has hit the lowest point in more than five years as the ongoing restructuring of bankrupt players dampens deposits amid a still large amount of problem loans, data showed Monday.

The average balance of savings banks' money supply, known as M2, came in at 41.1 trillion won ($38.8 billion) for local savings banks as of the end of November last year, the lowest since the 40.7 trillion won tallied in July 2007, according to data by the Bank of Korea and an industry association.

M2 is a narrow measure of liquidity, which covers currency in circulation in all types of deposits with a maturity of less than two years at lenders and non-banking financial institutions, excluding those held by insurers and brokerage houses.

A slower growth in M2 means there has been less inflow of money in the market, which can leave market players with limited choices for making profits.

The liquidity of savings banks grew at a steady pace to a record of 69.8 trillion won in 2010 before sliding to the 40 trillion won level in the last three years. 

The industry's low liquidity came as it suffered a massive default crisis in January 2011, when the regulatory authorities suspended some 20 savings banks due to imprudent lending practices.

At the time, the savings banks were found to have extended loans to many property financing projects without thorough credit evaluations. So far, a total of 24 savings banks have been shut down, leaving thousands of depositors unable to recover their savings.

Since the overhaul, individuals have been turning away from putting their money in savings banks, which has made it harder for savings banks to turn a profit from either the loan business or other asset management.

"They cannot offer attractive interest rates for term deposits because they're facing difficulties with their loan business," said an official at a savings banks association.

Market watchers predict that the liquidity situation for savings banks is unlikely to get better any time soon since it would be hard for them to find a new source of profit due to the sagging local property market.

"Thirty-seven savings banks have a capital ratio of less than 5 percent. We can't rule out the possibility of seeing more suspensions this year," said Lee Koh-eun, an analyst at Korea Investment & Securities Co. (Yonhap News)