Gov't suspends 7 troubled savings banks

(ATTN: CHANGES lead and headline; ADDS photo, paras 6, 8, 11-13, penultimate para; CORRECTS name in para 3; UPDATES throughout) By Lee Minji SEOUL, Sept. 18 (Yonhap) -- South Korea's financial regulators on Sunday suspended business operations of seven savings banks, including major players Jeil and Tomato whose asset values exceed 3 trillion won (US$2.7 billion), as part of its efforts to overhaul the ailing sector. South Korea has been grappling with salvaging the troubled sector as savings banks have been suffering from deteriorating asset quality due to soured construction loans. Business operations at the seven players -- Jeil Savings Bank, Jeil 2 Savings Bank, Prime Mutual Savings Bank, Daeyeong Savings Bank, Ace Mutual Savings Bank, Parangsae Savings Bank and Tomato Savings Bank -- were suspended for six months starting at noon on Sunday, according to the financial regulators. Trading of the listed savings banks' shares will be halted starting Monday. "The measure has concluded efforts to overhaul the savings bank sector. ... The dissipation of uncertainties over the savings sector will help stabilize the problem, which has been criticized for causing fear in the local finance industry," Financial Services Commission (FSC) Chairman Kim Seok-dong said in a press briefing. The move comes after financial regulators completed an inspection of 85 local savings banks, with a focus on their debt situations and capital adequacy ratios stipulated by the Bank for International Settlements (BIS) standards. Following a seven-week inspection, the FSC had requested 13 savings banks with unhealthy financial conditions to submit plans for normalization. Financial regulators said they suspended six of the 13 players whose BIS ratios came in below 1 percent and whose debts outweighed assets. Their plans for normalization were also disapproved. Jeil 2 Savings Bank, whose BIS ratios also fell below 1 percent, filed for a business suspension amid concerns a possible bank run at parent firm Jeil Savings Bank will strain its liquidity. The suspended players will be eligible to resume operations if they succeed in normalizing their businesses within 45 days via measures such as capital increases. If they fail to do so, the state-run Korea Deposit Insurance Corp. (KDIC) plans to sell the seven players or transfer their business contracts to a KDIC-run savings bank in a bid to resume operations within three months, the financial regulators said. Plans submitted by the remaining six savings banks were deemed feasible, the FSC said, adding they would be granted a "certain period" to push for normalization. The FSC did not disclose the names of those financial firms. Meanwhile, financial authorities downplayed the possibility of additional suspensions later this year. "Inspections of savings banks are virtually finished for the year. Given the fact that it takes two to three months for such process, inspections are highly unlikely unless there are unexpected changes in circumstances," said FSC Secretary General Kim Joo-hyeon. The financial regulators said they plan to utilize public funds to help capital expansions at savings banks whose BIS ratios exceed 5 percent but wish to raise it to a 10 percent level. Deposit holders of the seven savings banks, which include 25,535 retail customers, will be allowed to withdraw up to 20 million won of their holdings starting Thursday. In response to the Sunday move, the Korea Federation of Savings Banks said in a statement it believes the strict inspection and high evaluation standards may weigh on savings banks in the short term but is likely to contribute to the industry's development by staving off uncertainties. South Korea has suspended 16 savings banks this year, including top player Busan Savings Bank.