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South Korea savings banks face assets probe

05 july 2011, 13:43
Photo courtesy of www.dreamstime.com
Photo courtesy of www.dreamstime.com
South Korea's financial regulator said Monday it would start assessing the finances of savings banks to see whether they are healthy enough for government support or should be suspended, AFP reports.

The Financial Services Commission (FSC) said the investigation into 85 out of the 93 savings banks would start this month and run through August.

Authorities have suspended eight savings banks this year for inadequate liquidity after soured real estate project financing swelled the sector's bad debt.

The debt is too small to threaten the overall banking and financial sector.

But the suspensions have fuelled anger among small depositors before parliamentary and presidential elections next year, especially after claims that wealthy depositors were tipped off in advance about the action.

The FSC said its probe would focus on capital adequacy ratios stipulated by the Bank for International Settlements standards.

Those savings banks with capital adequacy ratios above five percent would be eligible to receive state funds to bolster their assets if they wish.

Banks with a ratio below this would be suspended unless their fiscal health improves within a set period.

"In a bid to help ease market worries over savings banks, financial regulators will try to get the lowdown on the actual situation by examining their businesses and inducing their self-rescue efforts," FSC chairman Kim Seok-Dong told reporters.

"The plans are expected to create a healthy base for the savings bank sector's growth and reduce market worries," Yonhap news agency quoted him as saying.

The regulator said it would not suspend any troubled savings banks before its assessment is announced in late September, unless the bank faces a severe liquidity shortage due to customer runs.

Samhwa Mutual Savings Bank, the first savings bank this year to be suspended, was sold to Woori Finance Holdings in March. The other seven suspended savings banks have also been put up for sale.

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