Regulators uncover illegal lending by some savings banks


Despite initial concerns that customers would withdraw their deposits en masse, the banking sector’s overall business operation looked normal, government and bank officials said on Monday.

They said there were no particular signs of a bank run in most savings banks on Monday afternoon.

On Sunday, the Financial Services Commission, the nation’s top regulator, suspended the operations of seven more savings banks.

The surprised move had raised the fear of a bank run on the secondary banking industry.

But only Tomato 2 Savings Bank saw about more than 9 billion won ($8.2 million) in deposits withdrawn in an hour after the bank started its daily operation at 9 a.m. on Monday.

Considering that a daily withdrawal from the secondary bank has ranged between 2 billion and 3 billion won, the 9 billion won in an hour is noteworthy.

Tomato 2 Savings Bank is a subsidiary of debt-saddled Tomato Savings Bank, which was suspended for its operations for six months by the FSC.

In a move to placate consumers, however, FSC chairman Kim Seok-dong visited Tomato 2 Savings in downtown Seoul on Monday to open a savings account and deposit 20 million won.

In the meantime, financial authorities said several savings banks were discovered to have allegedly extended illegal loans to their major shareholders.

The allegations come a day after the FSC halted the business operations of seven savings banks, citing their insufficient capital adequacy ratios and heavy debts.

A group of savings banks, including three suspended players, were discovered to have extended illegal loans, ranging from tens of billions of won to as much as hundreds of billions of won to their key shareholders, said officials at the Financial Supervisory Service, an arm of the FSC.

A savings bank extended loans worth 640 billion won, or nearly 70 percent of its total assets, to two urban development projects virtually linked with the savings bank.

FSS data showed that more than 90 percent of the savings banks’ irregularities exceeded the legal range.

According to local finance industry law, savings banks are not allowed to extend loans worth more than 20 percent of its equity capital to a single borrower.

The FSS is poised to file a complaint against the banks involved in irregularities with the prosecution.

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