The Financial Services Commission (FSC), the country's financial watchdog, on Sunday ordered business suspensions of seven savings banks with heavy debts and inadequate capital ratios as part of its efforts to overhaul the industry struggling to cope with an overdose of sour property loans.
The move affected seven players -- Jeil Savings Bank, Jeil 2 Savings Bank, Prime Mutual Savings Bank, Daeyeong Savings Bank, Ace Mutual Savings Bank, Parangsae Savings Bank and Tomato Savings Bank -- and more than 600,000 clients, and sparked fears of a bank run which could effectively cripple the entire industry.
In a bid to prevent such a liquidity crisis, financial regulators and officials visited savings banks across the country as part of an all-out effort to reassure investors and request that they refrain from excessive withdrawals.
FSC Chairman Kim Seok-dong visited Tomato 2 Savings Bank in central Seoul earlier in the day to deposit 20 million won (US$17,606) in a bid to prove the affiliate of suspended Tomato Savings Bank was stable.
"Deposit holders do not need to be shaken. I also deposited my money here," Kim told around 100 customers who had anxiously come to the central Seoul branch to check the safety of their accounts.
"The suspended Tomato Savings Bank and Tomato 2 Savings Bank are separately managed. Tomato 2 was deemed a normal and healthy savings bank according to the inspection by financial regulators," Kim stressed.
The heads of the Financial Supervisory Service (FSS) and the Korea Deposit Insurance Corp. also visited branches of Tomato 2 Savings Bank to deposit money and quell investor fears.
The FSC and the FSS, meanwhile, said in a briefing they have dispatched more
than 100 officials to the branches of the affected savings banks to brief
account holders.
Investors, however, raised doubts about the
regulators' efforts, sparking worries that the situation may get out of
control.
"I withdrew part of my holdings that exceed the
state-guarantee limit of 50 million won before the Sunday suspension. However, I
am still worried because I saw normal savings banks collapse earlier this year,"
said 58-year-old Lee Kang-hyun, who owns a restaurant in eastern
Seoul.
"My wife couldn't sleep all night and asked me to come here. A
lot of average people are customers of savings banks. But I'm not sure if the
government is doing enough," said Lee, adding he may consider retrieving money
from his account.
Other customers echoed Lee's opinion, saying they
don't feel completely assured by the government's measures following the
suspension.
Financial regulators, however, said there were no signs
yet of massive withdrawals following the Sunday suspension.
"It is
true that withdrawals increased slightly. However, what is positive is that the
amount is declining as time passes," said FSC Secretary General Kim
Joo-hyeon.
Around 20 billion won has been retrieved from Tomato 2
Savings Banks' 1.5 trillion won deposit base as of end-June, financial
regulators said, adding no massive withdrawals were seen in other
normally-operating savings banks.
Meanwhile, the suspension had
limited impact on the local stock market, with shares of savings banks that were
excluded from the suspension mostly closing flat.
Share prices of
major firms Solomon Savings Bank and Jinheung Savings Bank both remained
unchanged, while Korea Savings Bank gained 1.27 percent to 5,600 won. Seoul
Savings Bank, meanwhile, shot up by the daily limit of 15 percent to 2,300
won.
Trading of shares of suspended Jeil Savings Bank were halted by
the local bourse operator.
"Since the overhaul was already known to
the market, its negative impact is likely to be small. Its relevance to the
recent household debt issue is also small, given the fact that the main reason
behind the industry's struggle was property project financing rather than
household debt deterioration," KH Koo, an analyst at Hyundai Securities Co.,
said in a report.
South Korea has suspended 16 savings banks this
year, including once top player Busan Savings Bank.
Source: Yonhap News (Sept. 19, 2011)