Get strict on restructuring unhealthy savings banks

SEOUL, May 25 (Yonhap) -- The Financial Supervisory Board reportedly plans to launch an all-out probe on the soundness of some 470 construction projects being carried out with project financing (PF) from savings banks totaling 7 trillion won (US$6.36 billion).
As of the end of last year, the outstanding PF loans construction companies owed to savings banks amounted to 12.2 trillion won. With the collapse of Busan Savings Bank, the figure was cut to 7 trillion won but the overdue rate soared to 25 percent, heightening the possibility of insolvency for savings banks.
The financial watchdog said it will complete the probe by the end of next month and take action on insolvent PF projects. The financial industry sees the probe on the PF projects as a signal of restructuring to come among savings banks in the second half of this year.
The insolvency at savings banks mostly stemmed from the delay in restructuring those banks. Poor supervision of the savings banks by financial regulators further deepened the insolvency.
Financial authorities are not giving clear answers on the prospects of suspending more savings banks in the second half on the grounds that it could trigger a bank run that would affect not only the insolvent savings banks but their financially sound counterparts as well.
The FSB said it will scrutinize the soundness of the 98 savings banks while conducting a probe into PF projects. The watchdog should bear in mind its experience in dealing with Busan Savings Bank, in which it failed to detect irregularities for a long time
There is a good possibility that the overdue rate of PF loans that savings banks have reported is far less than the figure in reality. The FSB should investigate thoroughly the insolvency that banks may be concealing under the surface.
The board should also keep a vigil against any lobbying by former FSB officials who work as auditors for savings banks to protect their current owners from the probe.
The financial authorities are advised to restructure swiftly the unhealthy savings banks.
In such a situation, the authorities should make every effort to prevent information leaks on a savings banks' impending suspension and ensuing bank runs, because we all saw how that ended up for Busan Savings Bank in February.