Watchdog to advise savings banks to boost financial health

SEOUL, April 13 (Yonhap) -- South Korea's financial watchdog said Tuesday it
plans to stiffen rules involving capital bases at local savings banks by
requiring them to sell shares when they issue subordinated bonds.
If a bank sells junior-rated bonds with a maturity of more than five years, the
proceeds are recorded as supplementary capital. The debt sale helps the bank
raise its capital adequacy ratio, but the lender must redeem the debt when the
maturity comes due.
The Financial Supervisory Service said because selling such debts as a way to
boost capital is not a sufficient way for savings banks to beef up their
financial soundness, it plans to advise them to increase their core capital by
floating shares.
The move came as the Financial Services Commission said it will gradually raise
the capital adequacy ratio requirement to 7 percent from the current 5 percent
for savings banks.
Local savings banks, which provided property-linked loans mostly to smaller
builders during the 2005-2006 housing market boom, saw their capital adequacy
ratio fall as the economic slump impacted local construction firms' ability to
service debts.
sooyeon@yna.co.kr
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