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Korean Regulator Extends Suspension of Seven Savings Banks

South Korea extended its suspension of seven savings banks whose operations were halted in February because of a liquidity squeeze and threatened to order their sale if they fail to improve finances.

The Financial Services Commission today shut the lenders -- Busan Savings Bank and four of its affiliates, plus Bohae Mutual Savings & Finance Co. and Domin Mutual Savings Bank -- until Oct. 28, according to an e-mailed statement. It plans to invite offers for the banks in May and name preferred bidders in June if they can’t raise capital or bolster finances within 45 days.

Korean savings banks are saddled with soured loans made to property developers that are suffering amid a real estate slump. The regulator has asked commercial lenders to help the banks by taking over their bad debt.

The Financial Supervisory Service, a privately funded organization that enforces government regulations, yesterday said it will replace officials in charge of inspecting savings banks following public criticism that its response to the crisis was inadequate.

Regulators found some “improper” deposit withdrawals at the savings banks before their business was suspended and will take “severe” action if they find banking rules were violated, according to today’s statement.

Woori Finance Holdings Co., the country’s third-largest financial company, in March acquired some assets at Samhwa Mutual Savings Bank, another suspended savings bank. Lenders including KB Financial Group Inc. (105560), owner of South Korea’s largest lender, have expressed interest in buying savings banks.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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