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Gov't to pump more money into suspended savings banks

All Headlines 10:04 September 27, 2011

SEOUL, Sept. 27 (Yonhap) -- South Korea's financial regulator said Tuesday it plans to inject more funds into suspended local savings banks as part of its efforts to salvage the sector struggling with heavy losses from soured property loans.

The Financial Services Commission (FSC) recently halted business operations of seven ailing savings banks for six months, citing insufficient capital, raising the number of suspended savings banks this year to 16.

"We plan to extend the operating period of the savings banks special account within the Korea Deposit Insurance Corp. (KDIC) by up to five years, which will help raise an additional 5 trillion won (US$4 billion)," a senior FSC official told Yonhap News Agency by phone.

A special fund was installed at the state-run deposit insurer in March as part of the government's efforts to restructure the ailing sector. The fund, which draws money from insurance commissions from savings banks and other financial institutions, was initially set to run until 2026 to help finance deposits and insufficient capital by raising around 1 trillion won annually.

The FSC's decision comes amid views the planned 15 trillion won to be raised by the special fund would be insufficient to cover costs for restructuring the recently suspended savings banks, which include two players with equity capital of more than 3 trillion won.

"If the suspended savings banks fail to normalize and start their sale process, more money could be needed to fill their insufficient capital and raise their capital adequacy ratio," said the official.

The financial regulator, however, denied doubts the move was designed to brace for additional suspensions.

"We are not raising the fund in a bid to initiate more suspensions in the second half of the year. It's part of a plan to create a safety net," the FSC official said.

FSC Chairman Kim Seok-dong has repeatedly stressed there will be no more savings bank suspensions this year, unless "unexpected situations" occur.

In July, the government announced a set of measures designed to prop up the ailing sector and prevent it from negatively affecting the broader financial system.

The measure includes plans to utilize the KDIC fund for suspended players as well as pumping in public funds to bolster operations of relatively healthy savings banks.

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