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Savings Bank in South Korea Monitored

South Korea’s financial regulator unveiled a set of tightened regulations on savings banks on Thursday in an effort to shore up the financial health of the beleaguered sector.

The move came after the Financial Services Commission (FSC) suspended eight troubled savings banks this year and tapped reserve funds by the financial sector and taxpayers’ money to salvage distressed savings banks, reeling from sour construction project financing loans.

FSC Chairman Kim Seok-dong said the watchdog will step up supervision of savings bank major shareholders and restriction of the sector’s risky businesses.

“The FSC will strengthen the surveillance role of outside directors and auditors at savings banks and immediately weed out unsuitable players in order to restrain savings banks’ excessive competition for size growth,” Kim said.

“Savings banks’ excessive investment in risky assets and severe competition to grow loan assets, combined with the worsening management environment following the 2008 global financial crisis, sparked the crisis in the sector, forcing the FSC to restructure the industry.”

As part of the restructuring measures, the FSC said it will more tightly limit savings banks’ investment in risky assets, such as high-yield corporate bonds, and excessive lending activities as well as issuances of subordinated bonds.

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