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South Korea Suspends 7 Savings Banks, Citing Weak Finances

South Korean financial regulators suspended seven local savings banks today, citing their weak finances.

Jeil Savings Bank (024100), Jeil II Savings Bank, Tomato Savings Bank, Prime Mutual Savings Bank, Ace Mutual Savings Bank, Dae Yeong Mutual Savings Bank and Parangsae Mutual Savings Bank were ordered to halt operations for six months, the Financial Services Commission said in an e-mailed statement.

“The measures announced today completes a series of restructurings of the savings bank industry,” FSC Chairman Kim Seok Dong said in a webcast briefing. “Resolving the uncertainty surrounding the industry will help stabilize savings banks troubles, which have been cited as a factor causing unrest in our financial market.”

South Korea has been tightening supervision of small lenders after a real-estate market slump soured construction loans. The financial watchdog in July began assessing 85 savings banks to determine if they are sound enough to receive government aid or should be sold.

Six of the suspended lenders had capital-adequacy ratios below 1 percent under Bank for International Settlements criteria, their debts exceeded assets, and their proposals to improve management weren’t approved by regulators, the FSC said. One savings bank requested suspension, it said.

45-Day Deadline

The institutions will be offered for sale or their operations transferred to state-controlled savings banks should they fail to improve finances and bolster capital within 45 days, the statement said. Savings banks with BIS ratios of 5 percent or higher can tap government-supported funds to boost their capital adequacy, it said.

South Korea suspended nine savings banks earlier this year after their finances deteriorated because loans for construction projects went bad.

Woori Finance Holdings Co., the country’s largest financial company by assets, acquired assets of Samhwa Mutual in March.

Licenses of Daejeon Mutual Savings Bank, Jeonju Savings Bank and Bohae Mutual Savings & Finance Co. were canceled after they failed to attract buyers, the FSC said on Sept. 5.

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net;

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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