By Kang Seung-woo
The nation’s financial regulator said Tuesday that it has suspended one more savings bank reeling from massive construction financing loans defaults.
The Financial Services Commission (FSC) announced it had suspended Domin Savings Bank, based in Chuncheon, Gangwon Province, for six months. The lender closed its six branches there voluntarily earlier in the day for fear of a bank run.
Domin is one of five savings banks that have failed to meet the government’s recommendation of a 5-percent capital adequacy ratio. It saw a total of 18.8 billion won withdrawn, Monday.
Since new FSC Chairman Kim Seok-dong took the helm of the regulator last month, eight savings banks have been ordered to halt operations.
An FSC official said that Domin’s bank for international settlement (BIS) ratio had fallen below 1 percent, forcing the regulator to suspend its business.
Other than the suspension of Domin, the FSC chairman’s all-out efforts to stifle lingering jitters over possible shutdowns of distressed savings banks through mass withdrawals are working, as the chances of bank runs appear to have abated.
Kim visited Mokpo, South Jeolla Province, where the suspended Bohae Savings Bank is based, Tuesday, and continued to prevent an exodus among depositors of the secondary banks, who were alarmed by the financial regulator’s suspension of business of six similar lenders last week.
The 57-year-old had also travelled to Busan, South Gyeongsang Province the previous day to calm anxious customers.
The trip came after the FSC ordered seven lenders to halt their operations within five weeks, citing a liquidity crunch. His continuous assurances that there will be no more shutdowns of savings banks are slowly working.
“The market is getting back on track,” Kim said at Mokpo Chamber of Commerce and Industry (CCI). “In Busan, the number of customers lining up to pull out their cash is lessening and (I think) other regions seem to have turned the corner.”
On Monday, a total of 490 billion won was withdrawn from 98 savings banks, including 90 billion won from 10 savings banks in the port city, but according to the financial authorities, 220 billion won was pulled out Tuesday.
“We can see some deposits recorded at one of the ailing savings banks,” said an official of the financial authorities.
The chairman also asked depositors to trust the government.
He said, “The government is trying its utmost to normalize the operations of savings banks as soon as possible and customers need to have confidence in the government.”
Kim’s drive is supported by those around him.
Kyongnam Bank, a regional bank unit of Woori Financial Group, will provide 50.4 billion won to Woolee Savings Bank through buying up the same amount of assets held by the liquidity-squeezed savings bank. Woolee, where Kim deposited 20 million won Tuesday, is one of five lenders whose capital adequacy ratio failed to meet the government’s recommendation of 5 percent.
In addition, major shareholders of savings banks, including Hanwha Group, are also scrambling to shore up their own balance sheets and capital strength by raising capital and bolstering liquidity, according to the industry.
Hanwha, which owned Saenuri Savings Bank, said Monday it will sell 30 billion won in shares to raise its capital adequacy ratio.
Market watchers say that a bank run is not likely to take place.
“As all insolvent savings banks have already been disposed of and they only went through a mass pullout, with some blue-chip banks enjoying an increase in deposits, a bank run will not spread,” said Lee Chang-seon, managing director of the financial research department at LG Economic Research Institute.
“(I think) they are over the hump.”
Lee added that Kim deserves credit for bringing the savings bank problem to the surface.
“This is not the first time for savings banks to go through a crisis, but the government has sought easy ways to settle the matter by letting a bigger bank acquire a smaller one, which ended up in insolvency,” he said.
Woolee merged with an ailing lender in the wake of the Asian Financial Crisis.
“Although there are pros and cons to Kim’s plan to restructure the distressed savings bank industry, it is a positive fact that he publicized the issue,” he said.