Low-capital savings banks asked to take self-help steps

South Korea's financial watchdog said Monday it has requested savings banks with substandard levels of capital to submit self-rescue measures as part of its efforts to overhaul the troubled sector. Last week, the regulatory Financial Services Commission (FSC) launched a two-month inspection into 85 savings banks to look into their financial health and determine whether to pump public funds into viable players. The Financial Supervisory Service (FSS), the executive body of the FSC, currently advises local savings banks to maintain capital adequacy ratios above 5 percent. But banks with ratios of 8 percent and more are usually deemed financially sound. A key barometer of financial health, the capital adequacy ratio measures the percentage of a bank's capital to its risk-weighted assets. "We requested all savings banks with capital adequacy ratios below 8 percent to increase capital through asset sales or injections of funds by their largest shareholders," a regulatory official said. Based on the outcome of the inspection, South Korea plans to restructure the troubled industry in the second half. The FSC said it would pump public funds into viable savings banks to help their survival, but it may weed out non-viable players in a bid to prevent their potential defaults from weighing on the financial system. As of end-March, all 98 savings banks' average capital adequacy ratios reached 10.25 percent, but if seven suspended players' heavy losses are taken into account, the ratio fell to 7.57 percent, according to the FSS. South Korea is grappling with overhauling the distressed sector as local savings banks have been staggering from soured construction loans. The government has halted operations of eight players since January, one of which was sold to Woori Finance Holdings Co.