South Korea shuts down four savings banks

Failure to meet financial-strength standards proves fatal for four South Korean savings banks.

The Financial Services Commission (FSC), South Korea’s financial watchdog, has ordered Solomon Savings Bank (the country’s largest), Mirae Savings Bank, Hanju Savings Bank and Korea Savings Bank to halt their operations for six months.

All operations of the savings banks including Internet banking were suspended from 6:00am on May 6. The banks were told to appoint new managers and improve their finances within 45 days.

They will be put on sale if they fail to do so. The banks’ operations were suspended amid moves to strengthen South Korea’s banking industry.

Depositors will be allowed to withdraw up US$44,000 to avoid a bank run. FSC promised to investigate any irregularities by the banks’ major shareholders and executives who were ordered to stay in South Korea for questioning.

Mirae chairman Kim Chan-Kyong was arrested last week while trying to flee South Korea for China to avoid investigation and possible punishment over alleged irregularities, the government said.

Last year, FSC suspended 16 savings banks found to be in difficulty mainly due to reckless investments in risky property projects.