Seoul's financial watchdog recommends mutual savings banks increase capital base:

SEOUL, March 7 (Yonhap) -- South Korea's financial watchdog officially
recommended that nine local mutual savings banks increase their capital base to
counter declining capital adequacy ratios, an official said Saturday.
"We are currently encouraging all 105 mutual savings banks to increase their
capital and refrain from paying dividends as part of efforts to brace for a
deepening economic downturn," said a high-ranking official at the Financial
Supervisory Service (FSS).
"Of them, we officially recommended that nine banks whose BIS ratios stay between
5 percent and 7 percent to expand their capital base," he added. The official
didn't name the banks.
The BIS ratio, named after the Switzerland-based Bank for International
Settlements, is a key barometer of financial soundness that measures the
percentage of a bank's capital to its risk-weighted credit. Lenders are advised
to maintain the ratio at 8 percent or higher.
The FSS move comes as local mutual savings banks are under pressure from mounting
bad debts borrowed by smaller builders that were hit hard by the deepening
economic downturn. As people are delaying big-ticket purchases, around 165,000
newly built homes remained unsold last year, which is the all-time high.
According to the FSS, real estate project financing loans by local mutual savings
banks amounted to 11.5 trillion won (US$7.4 billion) at the end of December, with
the default rate standing at 13 percent.
kokobj@yna.co.kr
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