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LinkAsia | Apr 10
Faced with a slumping real estate market, the South Korean government has announced a plan to cut borrowing costs and provide tax breaks in order t...
Over in South Korea, the country's banking industry is in serious trouble. An epidemic of bad real estate loans has forced 20 banks to close, and about 90,000 depositors and small investors to lose almost 900 million dollars. At least four bankers have committed suicide in the past year. And as MBC reports, another wave of bankruptcies is on the way.
The Financial Supervisory Service announced that three more savings banks need improved management plans immediately. They all lack cash on hand after squandering it over the past year. The FSS has already put two savings banks on a watch-list, so a total of 5 are in trouble. If they can't find a way to survive, they will have to suspend operations or close down completely.
It might be inevitable to shut those savings banks which cannot compete, and are under the control of the Korea Deposit Insurance Corporation.
A total of ten savings banks are short of liquidity and 13 more have less than 5% equity capital. Forty-three banks, half of the saving banks, saw losses last year of 925 million dollars. Because the construction business is still in recession, 11 savings banks have more than 40 percent of their loans classified as "non-performing". If things get worse, and additional financing is not forthcoming, it's possible that many savings banks will be closed again. Accounts larger than 45 thousand dollars are not covered by deposit insurance and it is estimated that as many as 92 thousand depositors and 83 million dollars are in jeopardy.
South Korea encouraged the growth of small, regional banks to provide capital to low-credit customers, the kind of business ignored by the large commercial banks.