In a sign of more trouble in the second-tier banking market in Korea, four savings banks operations have been temporarily suspended by the Financial Services Service.
The banks were ordered to increase capitalization within 45 days or face the risk of being forced to permanently suspend operations or sell their assets. 16 banks were closed last year. These, previous, closings led to prosecutions and a bailout by the Korean government.
Savings deposits are backed by an explicit Korean government guarantee on each account at each bank of KRW 50,000,000 (USD 45,000). The banks are presently providing yearly deposit rates in the low 5% range. An investor may receive this protection from as many accounts opened if the accounts are at different banks. This, guarantee, along with many peculiar loans by these banks lead, in part, to this banking crisis in Korea. External factors played a negligible for in the crisis.
According to Korea's FSS the combined assets at the savings banks totaled nearly USD 53 billion nearly 31 percent from 2010.
Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com