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RETAIL BANKING | Staff Reporter, Korea
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Suspension of savings banks to have limited impact on Korea’s banking system: analyst

As the savings bank sector accounts for roughly 5% of the national banking system, which is relatively too small for it to make a big enough impact.

The government announced on Sept. 18, 2011, that it had suspended seven mutual savings banks for six months because of their shortage of capital and limited ability to restructure.

Here's more from Standard & Poor's:

Standard & Poor's Ratings Services said that the suspension of seven mutual savings banks is likely to have a limited impact on South Korea's banking system. This reflects our view of the banks' relatively small size within the system and potential government support measures.

The government announced on Sept. 18, 2011, that it had suspended seven mutual savings banks for six months because of their shortage of capital and limited ability to restructure. The seven banks have a market share of roughly 0.8% of the total deposits in the national banking system. The government's other measures to maintain depositors' confidence include the speedy partial payment of insured deposits to depositors.

In March 2011, the government announced that it would examine the financial health and regulatory compliance standards of 85 of the country's 105 individual mutual savings banks after eight of the banks ran into financial problems early this year.

In our view, the problems that Korea's mutual savings banks face are unlikely to evolve into systematic risks for the banking system because the banks are relatively small. In terms of assets and equities, the savings bank sector accounts for roughly 5% of the national banking system.

In our view, some additional mutual savings banks--especially those whose financial profiles are relatively weak--could face sizable deposit withdrawals in the next few months. We could see a flight to quality to stronger savings banks and commercial banks.

We expect the performance of the mutual savings bank sector to remain under pressure for the next 18 months. Our view takes into consideration the sector's high exposure to construction-related industries and real-estate project finance loans in a stagnant housing market.

The pace of consolidation in the sector could pick up, in our opinion, given the government's continuous efforts to restructure the mutual savings bank sector. Potential merger and acquisitions of troubled savings banks could provide growth opportunities to acquirers; but they may also put pressure on the acquirers' financial profiles.

 

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