Korea - Mass withdrawals made at savings banks despite government’s assurances

This is a follow up to the Korean Bank run story posted earlier here.

From The Korean Times:
By Kang Seung-woo

A total of 490 billion won was withdrawn from 98 savings banks Monday, despite the financial regulator’s assurance that there will be no more shutdowns of such institutions.

The amount is up 60 billion won compared with Friday, when the Financial Services Commission (FSC) suspended operations of four savings banks. Regulators are looking to see whether the mass withdrawals will continue today.

The withdrawals came after the FSC confirmed that it will avoid suspending operations of additional savings banks unless in an emergency, such as a bank run.

FSC Chairman Kim Seok-dong made the remarks Monday during his visit to Busan to hold a meeting with related agencies to devise measures to deal with ailing savings banks.

“The shutdown of savings banks would be limited to some troubled lenders and the government will try its best to protect the depositors of the distressed small-sized banks.”

His remark came after the FSC suspended operations of seven savings banks last week while putting four more on the alert list.

It shut down Busan Savings Bank, the foremost player in terms of assets, and its affiliate Daejeon Mutual Savings Bank for six months due to capital shortages. They failed to meet regulatory capital requirements.

Two days later, it suspended four more savings banks including three subsidiaries of Busan Saving Bank along with Bohae Bank for half a year each, citing concerns over liquidity problems.

The steps raised speculation that the additional suspension of savings banks in which the Bank for International Settlements (BIS) ratio is below 5 percent. According to the FSC, there are four savings banks - Domin, Woolee Savings, Saenuri Savings and Yes Savings - which cannot meet the benchmark capital adequacy ratio.

However, the chairman seemingly has tried to stop such drastic measures from generating financial woes among clients of those banks.

“Unnecessary withdrawals spurred by excessive concerns over the possible suspension of more savings banks may hurt the remaining sound savings banks,’’ he said.

In addition to his assurance, Kim presented policies to bolster the financially healthy savings banks and their clients.

The FSC said that the government will expand the supply of liquidity to the industry by easing regulations on the fund supply and extending maturity for already-provided liquidity.

It added the government will seek to buy non-performing loans extended by savings banks through public funds managed by the state debt clearer Korea Asset Management Corp. (KAMCO).

The FSC also promised to take steps to buttress savings banks to head off any associated risks.

Meanwhile, Saenuri Savings Bank, an affiliate of Hanwha Group, said it will sell 30 billion won in shares to raise its capital adequacy ratio.

The share sale is expected to bolster the ratio to 12.07 percent from the present 2.7 percent. Hanwha, the nation’s ninth-largest conglomerate, owns 100 percent of the savings bank.

In line with the government’s efforts to cope with any mass withdrawal, beleaguered savings banks are scrambling to keep their anxious customers from leaving for more stable institutions by raising interest rates.

According to the industry, a one-year deposit rate averaged 4.77 percent as of Friday at secondary banks, up 0.45 percentage points from Jan. 14, when the FSC suspended operations of Samhwa Savings Bank, the first bank of the seven.

Some lenders moved up the rates by more than 1 percentage point, offering a mid-5 percent rate to customers.

"Banks have raised their interest rates to keep existing customers whose deposits are maturing," said an industry official.

“In addition, they have revised rates to persuade customers alerted by recent suspensions of the seven savings banks by the FSC so they will not rush to retrieve their money.”

Along with the rate hike, savings banks have launched new financial products with lengthened expiration dates from 13 months to 15 months to avoid mass withdrawals.