Seoul Mutual, Solomon Savings Lead Gains in Korean Lenders

Seoul Mutual Savings Bank (016560) led gains among a group of small South Korean lenders that passed financial checks after regulators suspended operations at seven of their rivals.

Seoul Mutual Savings Bank jumped by the daily limit of 15 percent to 2,300 won at the 3 p.m. close of trading in Seoul, while Korea Savings Bank (025610) advanced 1.3 percent. The benchmark Kospi Index fell 1 percent.

South Korea is tightening supervision of small lenders after a real-estate market slump soured construction loans. The four banks were among those excluded from a list of lenders ordered to halt operations for six months after financial regulators assessed 85 local savings banks.

“These guys were given a new lease of life,” Shim Hyun Soo, a Seoul-based analyst at KB Investment & Securities Co., said by telephone. “The news is short of being a mid-to-long- term positive factor though, given the number of savings banks keeps declining. The industry itself may continue shrinking.”

Savings banks in South Korea are small regional lenders whose business is mostly limited to taking deposits and making loans. Given their small size, the suspension will likely have limited impact on the country’s overall banking system, Standard & Poor’s said in a statement today.

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 yesterday.

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.

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 reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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