South Korea's financial regulator said Sunday that it suspended operation of four local savings banks due to their shortage of equity capital and heavy debts.
Four savings banks, including Solomon Savings Bank, Korea Savings Bank, Mirae Savings Bank and Hanju Savings Bank, were ordered to suspend their operations for six months starting Sunday, according to the Financial Services Commission (FSC).
Three savings banks, including Korea, Mirea and Hanju, were ordered to shut down their businesses due to lack of equity capital and heavy debts. The three savings banks had less than one percent of the capital adequacy ratios based on the Bank for International Settlements (BIS) standards. The three savings banks and the other Solomon Savings Banks held heavy debts that outnumbered its assets.
The suspension came as a follow-up action that was taken to overhaul the ailing industry. During the first half of 2011, the FSC imposed a six-month suspension of operations on 9 savings banks, including Busan Savings Bank, the country's then-biggest savings bank by assets, before ordering the suspension on additional 7 savings banks in the second half of last year.
This year's action on the four savings banks was reportedly regarded as completing the regulator's overhaul plan of the savings banks industry.
The four savings banks will be given the opportunity to normalize their businesses on their own by raising equity capital through rights offering or public offer. If they fail to secure capital, their debts and assets would be disposed of to the third party.
According to the depositors' protection law, depositors at the savings banks will be guaranteed to get back up to 50 million won (44,169 U.S. dollars), but they cannot withdraw their money from the savings banks accounts before the resumption of business.
The Korea Deposit Insurance Corporation (KDIC), the state deposit insurer, planned to make provisional payments to the depositors as much as 45 million won, or up to 40 percent of their deposits in a bid to minimize the inconvenience of the depositors.