The South Korean government is to consolidate individual
emergency funds set up by the country’s commercial, investment and
savings banks, insurers and brokerages to insure against potential
bankruptcy of savings banks.
South Korea’s banks continue to suffer from toxic loan books
following excessive financing in the real estate market during the
property boom pre-2008.
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The Financial Services Commission (FSC) announced that it wants
to generate KRW20tr ($17.9bn) for the consolidated fund to prepare
for potential market instability and avoid excessive deposit
withdrawal.
Half of the fund will come from combining the individual funds
that the financial sectors, such as commercial banks and insurers,
have set up for emergency bail-outs for companies in their
respective sector.
Another KRW5tr will be generated from the government budget set
aside for corporate restructuring; KRW2tr from the fund set up by
the Korea Federation of Savings Banks; the savings bank association
will also contribute KRW2tr and the remaining KRW1tr will be paid
in by commercial banking groups and the Korea Asset Management
Corporation.
In December 2010, the Financial Services Commission (FSC)
proposed a bill to South Korea’s National Assembly to consolidate
these sector-specific funds in order for savings banks to tap into
when necessary.
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By GlobalDataAccording to Korean news agency Yonhap, the FSC aims to achieve
its proposal by the end of February.
The consolidated fund is part of the government’s initiative to
stabilise the balance sheets of country’s savings banks, although
the FSC said that the WON20tr does not reflect the amount needed to
stabilise the sector.
In mid-January, the Korea Deposit
Insurance Corporation suspended Samwha Mutual Savings Bank’s
operations for six months after the bank failed to meet
regulatory capital requirement levels.
Korean banks Woori, Shinhan and Hana have all
reportedly submitted their letters of intention to bid for troubled
Samwha, according to the Korea Deposit Insurance Corporation
(KDIC).
