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The Wall Street Journal
FEBRUARY 22, 2011, 11:21 A.M. ET
By SE YOUNG LEE
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SEOUL—South Korea's financial regulator suspended another savings bank's operations for six months, the seventh bank to be suspended since Thursday, as Seoul tries to head off potential systemic risks posed by the distressed sector.
The Financial Services Commission said Tuesday it suspended Domin Mutual Savings & Finance Co. after determining that it lacked sufficient liquidity to withstand a recent surge in withdrawals. Worried customers withdrew 30.4 billion won ($27.2 million) in deposits between Friday and Monday, compared with a 21.4 billion won in withdrawals from Jan. 14 to Feb. 16. The regulator revealed Thursday that the bank isn't meeting regulatory capital requirements.
"It is clear that the depositors' rights and credit market order will be at risk," the FSC said, adding that the run on the bank would have eventually rendered the bank unable to give back deposits.
Domin initially decided Tuesday to unilaterally shut down its operations in the face of the run, the authority said, then later decided to maintain partial operations with arbitrary limits on how much customers can withdraw. The authority said such steps were unacceptable and would create significant friction with the customers as well as confusion.
By suspending its operations, it will keep the bank from making new loans, taking deposits or allowing withdrawal of deposits. The bank can continue some activities, such as collecting payments tied to loans.
The suspension is the latest attempt by Seoul to contain potential problems posed by the savings bank sector, which is suffering from its exposure to the weak South Korean real-estate market.
The savings banks account for a relatively small segment of the financial sector, so problems with a few of them aren't expected to cause major problems for the broader economy. But the potential damage to market confidence that their problems could cause as well as their role in providing credit to those that can't get loans from the commercial banks mean that the authorities can't ignore them.
South Korean authorities have announced a series of measures since Thursday aimed at stabilizing the sector, including a pledge to provide necessary liquidity to help fiscally sound savings banks from being squeezed by bank runs.
Financial Services Commission Chairman Kim Seok-dong has implored savings banks' clients to be prudent and refrain from excessive withdrawals, assuring them the vast majority of the 105 savings banks in the country are in good financial shape. He has been traveling in the provinces since Monday to help assuage worries. He even made a 20-million won deposit in Woolee Savings Bank, a savings bank that recently saw a surge in withdrawals, in an apparent bid to help shore up confidence in the sector.
Overall, savings banks held a total of 86.89 trillion won in assets at the end of 2010, which is roughly half of the assets held by Hana Financial Group Inc.—the smallest of the four largest South Korean lenders.
The seven banks that have been suspended so far had previously been flagged as problem banks by the regulator and the market.
It is unclear what will happen to Domin, though the government has in recent months directed weak savings banks to raise more capital from major shareholders, merge with another savings bank or sell themselves. On Friday, the government selected Woori Finance Holdings Co.—the country's second-largest financial holding company by assets—as the preferred bidder for Samhwa Mutual Savings Bank, put up for sale by the government for failing to meet regulatory capital requirements.
The four largest South Korean lenders—KB Financial Group Inc., Woori, Shinhan Financial Group Co. and Hana—have expressed interest in acquiring savings banks to help stabilize the financial sector and to expand their business portfolio. This has been welcomed by the government, which sees such acquisitions as bolstering its efforts. Analysts say that the government's willingness to take on distressed savings banks' bad debt to assist potential buyers will minimize burdens on the big four lenders should they move to acquire such banks.
http://online.wsj.com/article/SB10001424052748703529004576160111056378334.html
---
The Wall Street Journal
FEBRUARY 22, 2011, 11:21 A.M. ET
By SE YOUNG LEE
---
SEOUL—South Korea's financial regulator suspended another savings bank's operations for six months, the seventh bank to be suspended since Thursday, as Seoul tries to head off potential systemic risks posed by the distressed sector.
The Financial Services Commission said Tuesday it suspended Domin Mutual Savings & Finance Co. after determining that it lacked sufficient liquidity to withstand a recent surge in withdrawals. Worried customers withdrew 30.4 billion won ($27.2 million) in deposits between Friday and Monday, compared with a 21.4 billion won in withdrawals from Jan. 14 to Feb. 16. The regulator revealed Thursday that the bank isn't meeting regulatory capital requirements.
"It is clear that the depositors' rights and credit market order will be at risk," the FSC said, adding that the run on the bank would have eventually rendered the bank unable to give back deposits.
Domin initially decided Tuesday to unilaterally shut down its operations in the face of the run, the authority said, then later decided to maintain partial operations with arbitrary limits on how much customers can withdraw. The authority said such steps were unacceptable and would create significant friction with the customers as well as confusion.
By suspending its operations, it will keep the bank from making new loans, taking deposits or allowing withdrawal of deposits. The bank can continue some activities, such as collecting payments tied to loans.
The suspension is the latest attempt by Seoul to contain potential problems posed by the savings bank sector, which is suffering from its exposure to the weak South Korean real-estate market.
The savings banks account for a relatively small segment of the financial sector, so problems with a few of them aren't expected to cause major problems for the broader economy. But the potential damage to market confidence that their problems could cause as well as their role in providing credit to those that can't get loans from the commercial banks mean that the authorities can't ignore them.
South Korean authorities have announced a series of measures since Thursday aimed at stabilizing the sector, including a pledge to provide necessary liquidity to help fiscally sound savings banks from being squeezed by bank runs.
Financial Services Commission Chairman Kim Seok-dong has implored savings banks' clients to be prudent and refrain from excessive withdrawals, assuring them the vast majority of the 105 savings banks in the country are in good financial shape. He has been traveling in the provinces since Monday to help assuage worries. He even made a 20-million won deposit in Woolee Savings Bank, a savings bank that recently saw a surge in withdrawals, in an apparent bid to help shore up confidence in the sector.
Overall, savings banks held a total of 86.89 trillion won in assets at the end of 2010, which is roughly half of the assets held by Hana Financial Group Inc.—the smallest of the four largest South Korean lenders.
The seven banks that have been suspended so far had previously been flagged as problem banks by the regulator and the market.
It is unclear what will happen to Domin, though the government has in recent months directed weak savings banks to raise more capital from major shareholders, merge with another savings bank or sell themselves. On Friday, the government selected Woori Finance Holdings Co.—the country's second-largest financial holding company by assets—as the preferred bidder for Samhwa Mutual Savings Bank, put up for sale by the government for failing to meet regulatory capital requirements.
The four largest South Korean lenders—KB Financial Group Inc., Woori, Shinhan Financial Group Co. and Hana—have expressed interest in acquiring savings banks to help stabilize the financial sector and to expand their business portfolio. This has been welcomed by the government, which sees such acquisitions as bolstering its efforts. Analysts say that the government's willingness to take on distressed savings banks' bad debt to assist potential buyers will minimize burdens on the big four lenders should they move to acquire such banks.
http://online.wsj.com/article/SB10001424052748703529004576160111056378334.html
