FSC Announces Measures to Enhance the Role of Savings Banks
Asset Soundness Grade 4 and BIS 11% Now Eligible for M&A
Restructuring of Savings Banks Expected to Accelerate
1 Trillion Won Fund Established for Normalization of Non-Performing PF
Loan Expansion to the Bottom 50% Credit Group
Savings banks that were previously subject to management improvement recommendations (asset soundness grade 4) will now also be subject to restructuring. To promote the swift restructuring of savings banks, the criteria for mergers and acquisitions (M&A) will be relaxed for two years. Additionally, a fund worth approximately 1 trillion won will be established to facilitate the smooth restructuring of non-performing real estate project financing (PF) of savings banks.
On the 20th, the Financial Services Commission (FSC) discussed the 'Measures to Enhance the Role of Savings Banks' with the savings bank industry and related organizations at the Government Seoul Office. The plan includes three main components: ▲expansion of regional and low-income financial supply ▲strengthening business capabilities and foundations ▲support for market stability and soundness management.
At the meeting, Kim Byung-hwan, Chairman of the FSC, stated, "Regarding the thorough soundness management of real estate PF loans, the industry's efforts such as active disposal of non-performing assets have slowed the upward trend of asset soundness indicators like delinquency rates and non-performing loan ratios." He emphasized, "Going forward, please ensure the smooth implementation of plans to dispose of and restructure real estate PF to restore management soundness and market trust."
The FSC decided to expand the scope of M&A to activate the restructuring of savings banks. Accordingly, savings banks that were previously subject to management improvement recommendations (asset soundness grade 4) will now be eligible for restructuring.
Savings banks with a Basel Committee on Banking Supervision (BIS) capital adequacy ratio of 11% can also be subject to M&A. Currently, under the Mutual Savings Banks Supervision Regulations, the BIS ratio regulation applies to those with 8% or higher (large savings banks with assets over 1 trillion won). However, a separate measure recommends maintaining a ratio above 11%. SangSangIn Savings Bank, which is currently undergoing a sale, recorded 10.5% as of the end of last year.
Along with this, to supplement existing measures for disposing of and restructuring non-performing PF such as auctions and public sales, a joint fund of over 1 trillion won will be established and operated to normalize non-performing real estate PF.
The borrowing limit of the Korea Federation of Savings Banks will also be raised from 3 trillion won to 5 trillion won. This is to enhance the federation's market stabilization support functions, considering the expansion of deposit scale and the increase in non-face-to-face transactions.
Furthermore, the role of supplying low-income financial services will be strengthened so that middle- and low-credit borrowers can obtain loans when needed. First, the target for Saetdol loans will be expanded to the bottom 50% credit group. Previously, over 70% of loans were supplied to the bottom 30% credit group, but going forward, 70% will be supplied to the bottom 50% credit group.
Incentives related to the supply of Hae-sal-loan and private mid-interest rate loans will also be strengthened. When calculating the loan-to-deposit ratio within the business area, a weighting of 150% or more will be applied, and private mid-interest rate loans will be excluded by 10% from the loan amount when calculating the loan-to-deposit ratio.
Additionally, to strengthen the insufficient credit evaluation capabilities of small- and medium-sized savings banks, the industry will continuously advance customized credit evaluation systems for middle- and low-credit borrowers through joint data management among small- and medium-sized savings banks, active use of alternative information, and the operation of a permanent credit evaluation system (CSS) management organization.
An industry official from the savings bank sector evaluated, "This policy is beyond expectations in that Pepper Savings Bank, Woori Savings Bank, and Solbrain Savings Bank, which were deferred from corrective measures, are now eligible for M&A," adding, "In difficult times, it is better for the savings bank industry to voluntarily restructure rather than causing confusion among financial consumers due to business suspension."
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