The Financial Services Commission (FSC) is planning to sell the seven savings banks whose operations had been suspended if they can’t raise capital or bolster finances within 45 days.
The FSC said it plans to put the seven banks up for sale in May and pick preferred bidders in June through auctions. The seven savings banks are Busan, Busan II, Jungang Busan, Daejeon, Jeonju, Bohae and Domin. All of them were issued sanctions of six-month business suspension last February.
“Though any of the seven companies could be allowed to resume their operations when they see business normalization within a certain period, the state-run Korea Deposit Insurance Corp. has no choice but to launch the sale process simultaneously,” an FSC official told a news briefing.
Mounting bad building loans resulting from a sluggish property market eroded the asset quality of the savings banks that were suspended.
In a bid to rescue the troubled savings bank industry, the FSC unveiled plans earlier this month to set up a bad bank to clear the distressed property loans and use public funds to bolster their capital base.
Woori Finance Holdings, the country’s third-largest financial company, in March acquired some assets at Samhwa Mutual Savings Bank, another suspended savings bank. KB Financial Group and other banking groups have expressed interest in buying savings banks.
He said all of them saw their debts surpass assets and BIS capital adequacy ratio stay below the 1-percent level, a minimum requirement set by the regulatory body.
Should business group-based capital service firms or insurance companies participate in the coming biddings, it could be easier for regulators to find a method to dispose of the bad assets held by the secondary banking sector.
Although the seven savings banks saw their asset soundness stay at a critically weak level, the situation for buyers is favorable as the FSC has proposed a method, called purchase and assumption.
Under the P&A, unlike in an ordinary M&A, buyers are entitled to acquire only the viable assets, not all of them, on a selective basis. They are also free of the obligation to retain a large portion of the savings banks’ employees.
Acquirers are likely to hand over the remaining non-viable assets to the state-run Korea Asset Management Corp. Eventually, the government-led restructuring of the secondary banking sector could end up injecting a sizable amount of taxpayers’ money into troubled savings banks.
Sources: Korea Herald, JoongAng Daily
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