Rule out external influence in restructuring of savings banks

(Yonhap Editorial) SEOUL, July 11 (Yonhap) -- South Korea's financial regulator has launched an intensive assessment of the financial conditions of 85 savings banks across the nation. The assessment, which will focus on the banks' capital adequacy ratios as stipulated by the standards of the Bank for International Settlements (BIS), will decide future of the banks.
Under the results of the assessment, those with BIS ratios of 5 percent or higher will be given public funds to improve their financial status while those banks whose BIS ratios are judged below 5 percent are expected to be liquidated unless they take intensive self-support measures during a given grace period.
The two-month inspection is expected to be most intensive, with a total of 338 inspectors participating from various agencies, including the Financial Services Commission (FSC), Korea Deposit Insurance Corp. and accounting firms. The participation of so many inspectors from different agencies has been interpreted as a show of authorities' determination to carry out the probe fairly and transparently, unlike past inspections that have often been criticized as being mere formalities.
Separately, the financial authorities also ordered especially troubled savings banks to submit self-support plans, including the selling of non-business real estate and increasing assets. These particular banks' BIS ratios stood below 8 percent as of the end of June based on their own self assessments.
The FSC says only a limited number of savings banks will see suspended operations as a result of the inspection. However, not a few banks will likely fail to meet the 5 percent requirement for survival. Those banks will be given a grace period of up to one year to normalize operations.
The savings banks are expected to make desperate efforts to defend themselves from such a strict probe. There is a high possibility that the banks will resort to various irregularities to hamper the inspection, as seen in the recent scandal involving Busan Savings Bank.
Their lobbying of the financial watchdog and politicians is also expected. We are concerned that the efforts to restructure the savings banks may end up in smoke due to the harsh resistance of the banks, political meddling and the waning determination of financial authorities. As a matter of fact, the financial authorities have delayed the restructuring of the insolvent savings banks under the premise that doing so will lead to the collapse of the industry and the financial market as a whole.
The inspection of savings banks is the last chance to eliminate insolvency in the industry and regain public confidence. The restructuring should not be influenced by external factors. Liquidation of insolvent savings banks will be the fundamental solution to prevent the collapse of the financial market.
The restructuring of nonviable savings banks should be thorough, independent of any external influence.