The South Korean Financial Services Commission (FSC) has
suspended six more savings banks since 17 February.

The FSC suspended the country’s largest savings bank by assets,
Busan Savings Bank, and one of its affiliates, Daejeon Mutual
Savings Bank, after they failed to meet regulatory capital
requirements on 17 February.

The suspension of Busan Savings Bank, which has assets of
KRW3.74tr, and Daejeon Mutual Savings Bank followed that of
Samwha Mutual Savings Bank in January.

On 21 February, the FSC decided to suspend Busan Central Savings
Bank, Busan 2 Savings Bank, Jeonju Savings Bank – also affiliates
of Busan Savings Bank – and Bohae Savings Bank.

All seven banks have failed to meet regulatory
capital requirement levels as South Korea’s banks continue to
suffer from toxic loan books following excessive financing in the
real estate market during the property boom pre-2008.

But the FSC said that the liquidity shortage
at the last four banks to be suspended were not as severe as that
of Daejeon Mutual Savings Bank and Busan Savings Bank.

It suspected liquidity to decline following
the announcement of the suspension of Daejeon Mutual Savings Bank
and Busan Savings Bank, which triggered a run on deposit
withdrawals at the other banks.

The liquidity shortage at Deajeon was triggered by a run of
deposit withdrawal since December.

The bank was no longer able to pay out any more deposits, the
FSC said.

On 17 February, the FSC had said that it did not expect to
suspend any more banks during the first half of the year.

On 14 February, the FSC announced that it
wanted to generate KRW20tr ($17.9bn) for a consolidated
to prepare for potential market instability and avoid
excessive deposit withdrawal.

The fund will be a mix of contributions from
individual emergency funds set up by the country’s commercial,
investment and savings banks, insurers and brokerages to insure
against potential bankruptcy of savings banks.