Another savings banks suspension

The Financial Services Commission suspended Sunday operations at seven savings banks: Jeil Savings Bank, Jeil 2 Savings Bank, Prime Savings & Finance Co., Daeyeong Savings Bank, Ace Mutual Savings Bank, Parangsae Savings Bank and Tomato Savings Bank. To begin on Monday and to continue for six months, the latest suspension is the second following a similar action taken against eight savings banks in the first quarter this year. This has concluded government efforts to restructure the country’s savings banks.

The capital adequacy ratios of the seven savings banks were less than 1 percent. Debts outweighed assets in all of these banks excluding Jeil 2. Several of the banks and their depositors say the financial watchdog has applied excessively rigorous standards. Had the government dragged its feet in overhauling the ailing savings bank sector, however, risks would have risen and undermined the country’s financial market and economy. The drastic overhaul of non-performing savings banks was inevitable despite the pain it will bring over the short term. From a long-term perspective, the overhaul will reduce uncertainty in the financial market.

With the assets of Jeil and Tomato each exceeding 3 trillion won (2.7 billion U.S. dollars), the combined assets of the seven banks exceeded 11 trillion won (9.9 billion dollars). Quite a few customers of these banks are known to have deposited more than 50 million won (45,100 dollars), the maximum sum that the government guarantees for depositors. Financial regulators should now devote all of their energy to alleviate the aftereffects of the latest suspension. They should prevent other savings banks from becoming victimized because their names are similar to those whose operations were suspended Sunday. The government and especially politicians must refrain from taking an anti-market and populist measure, however, of protecting bank customers whose deposits are more than 50 million won.

In management reviews of savings banks, the Financial Supervisory Service has discovered that certain savings banks committed illegal practices, such as violation of lending ceilings, though the infractions were not as bad as those committed by Busan Savings Bank. Financial supervisors and prosecutors must hold major shareholders and management of such banks accountable for illegal practices. If they are found to have embezzled money, financial authorities should track and recover the money to minimize losses to depositors.

Though the second round of savings bank restructuring was imminent, many banks raced to lure depositors with high interest rates. Seduced by this, quite a few customers opened accounts with the troubled banks with a considerable amount of deposits. One should be responsible for his or her investment. This is the basic principle of financial transactions. Depositors must be aware that high interest rates entail high risk. The savings banks that survived the latest crackdown should learn a lesson and reform themselves to emerge as genuine financial institutions serving the working class through sound and transparent management.