Mutual savings firms get trillion-won bailout

The government has taken an emergency measure, as domestic mutual savings companies are suffering from a rush of withdrawals in line with the suspension of Dong-A Mutual Savings and Finance Co., the nation's second largest firm.

In addition to Dong-A Mutual Savings, operation of Ulsan Mutual Savings -- the Bank for International Settlements (BIS)-based capital adequacy ratio of which fell to negative -- was suspended at 9:30 a.m. Monday.

The government announced measures to stabilize domestic mutual savings firms that are focused on offering 1 trillion won in emergency funding to them.

For additional liquidity supply, the Financial Supervisory Service (FSS) is expected to pay for Korea Asset Management Corp.'s purchase of non-performing loans from mutual savings firms with a plan to buy 300 billion to 400 billion won worth of non-performing loans additionally.

Also, the Korea Asset Management Corp. (KAMCO) will set a credit line with Kookmin Bank and KorAm Bank to provide 500 billion won to mutual savings firms with the assets owned by the association of mutual savings companies as collateral. Besides, financial aid by domestic banks to mutual savings firms will be expanded by as much as 100 billion won.

In particular, the FSS said that it was discussing with the Korea Deposit Insurance Corp. (KDIC) a plan to expand the limit of cash withdrawals during operational suspension from the current 1 million won to 5 million won in a bid to protection depositors.