January 14, 2011
SEOUL (AFP) - South Korean financial regulators suspended a troubled savings bank Friday as part of a drive to strengthen the banking industry.
The Financial Services Commission said the Seoul-based Samhwa Mutual Savings Bank was suspended for six months for failing to meet capital requirements.
"Samhwa will be auctioned off unless it normalises operating capital in a month," the commission said in a statement.
The suspension was the first of its kind in South Korea since G20 leaders endorsed tighter financial regulations at their summit in Seoul last November.
As of June last year, Samhwa's debts exceeded assets by 50.4 billion won ($45.2 million), the commission said.
It said the suspension will not affect the financial sector since Samhwa's assets, valued at 1.4 trillion won, account for only 0.05 percent of assets held by all local financial institutions.
Financial regulators have mapped out measures to restructure savings banks with high bad debts, mostly due to souring construction loans. They closed Jeonil Mutual Savings Bank, a provincial player, in December 2009.
The Basel III rules approved by the G20 call for the creation of a system to allow troubled banks to fail without jeopardising the financial sector and forcing taxpayers to save them.
The issue of systemic risks was exposed during the global financial crisis of 2007 and 2008, when governments were forced to step in and rescue troubled banks.
