A savings bank that came close to being suspended last year was found to have extended loans worth billions of won under borrowed names, sources said Monday.

The finding comes as six troubled savings banks in Korea face a make-or-break moment after the grace period for penalties against the lenders with substandard capital ratios expired late last month.

In mid-September, Korea’s financial regulators suspended business operations of seven troubled savings banks as part of its efforts to overhaul the ailing sector, but the six were temporarily saved after submitting plans for business normalization.

The Financial Supervisory Service has found borrowed-name loans for project financing in one of the six savings banks, whose assets top 2 trillion won ($1.7 billion), according to insiders.

FSS officials said they plan to thoroughly look into the issue and take legal measures if the findings turn out to be true. The watchdog, however, declined to confirm whether such loans were taken since inspections are still under way.

Legal measures on illegal loans are not direct factors that the Financial Services Commission takes into account when assessing the viabilities of the six savings banks.

If the irregularity was found to have dented the financial health of a savings banks, however, it may have serious implications for its fate.

Although assets held by savings banks account for only around 2 percent of the domestic finance industry, Korea has been stepping up efforts to revamp the ailing sector on concerns a deterioration in their financial health may impact the whole sector.

Last year, the FSC suspended a total of 16 savings banks, including top industry player Busan Savings Bank, after completing an inspection of savings banks with a focus on their debt situations and capital adequacy ratios stipulated by the Bank for International Settlements standards.

Plans to sell the suspended savings banks to the country’s major banking groups are under way, with the country’s four major banking groups taking part. 



(Yonhap News)