As Sangsangin Plus Savings Bank's capital adequacy ratio under the Bank for International Settlements (BIS) standard this year falls short of the recommended level, the possibility of an investigation by the Korea Deposit Insurance Corporation (KDIC) is being raised. Under current rules, if a savings bank's BIS ratio falls below the recommended threshold, the KDIC can conduct a standalone examination of its management status. Sangsangin Plus Savings Bank has already received a prompt corrective action from the financial authorities, and if this leads to a KDIC probe as well, it could become a double blow. Because Sangsangin Plus Savings Bank is under an order from the financial authorities to sell, if concerns over deteriorating soundness keep surfacing, Sangsangin Group's control over the sale could be shaken.
According to the semiannual report on the 16th, in the first half of this year Sangsangin Plus Savings Bank's BIS-based capital ratio was 8.71%, down 0.56 percentage points from a year earlier. Under current regulations, savings banks with asset size of 1 trillion won or more must maintain a BIS ratio of at least 8%, with 11% as the recommended standard. Sangsangin Plus Savings Bank falls into this category as well.
Sangsangin Plus Savings Bank also fell below the recommended BIS ratio in the first half of last year and was asked by the Financial Supervisory Service to submit a capital raising plan. At that time, Sangsangin, Raon, and Baro Savings Bank were also asked, along with Sangsangin Plus Savings Bank, to submit capital raising plans, but this year they succeeded in improving their BIS ratios. Sangsangin Plus Savings Bank is known to have seen its BIS ratio decline as loan-loss provisions increased due to worsening soundness.
If the BIS ratio falls below the recommended level, the KDIC can launch a standalone investigation under the Depositor Protection Act. This means the KDIC can closely examine a savings bank's management conditions, including its capital raising capacity and asset management status. If the savings bank is judged to have a high level of risk, it is subject to measures such as corrective action, the dispatch of supervisors, and differential insurance premium charges. Even last year, when Sangsangin Plus Savings Bank's BIS ratio fell below 11%, the possibility of a standalone KDIC probe was raised, but it is unknown whether it actually took place.
A KDIC official said, "Although prompt corrective action by the financial authorities has already been imposed, the KDIC can also conduct a standalone investigation subject to agreement with the authorities."
Sangsangin Plus Savings Bank received prompt corrective action from the Financial Services Commission in Jul., and concerns over deteriorating soundness have already surfaced. Prompt corrective action is an administrative measure under which the financial authorities require financially weakened institutions to improve management. Depending on the state of soundness, three stages of disposition—recommendation, requirement, and order—are imposed, and Sangsangin Plus Savings Bank received the second stage, a requirement order. Management improvement measures must be carried out within 12 months. If the commitments are not met, the bank could later face suspension of operations or be merged or sold.
Sangsangin Group is in a position where it must expedite the sale of Sangsangin Plus Savings Bank. However, if a KDIC examination materializes and the soundness issue comes back into focus, it could be placed at a disadvantage during price negotiations in the sale process. Citing issues with the eligibility of the major shareholder, the Financial Services Commission in Oct. 2023 ordered the sale of Sangsangin Savings Bank and Sangsangin Plus Savings Bank, and the process is underway.
If Sangsangin Group fails to sell the two savings banks within the prescribed deadline, it will have to pay enforcement fines amounting to hundreds of millions of won per year. Under the measures by the financial authorities, Sangsangin Group had to sell at least 90% of its 100% equity in the savings banks by Jul., but it is currently buying time by pursuing administrative litigation with the Financial Services Commission.
Sangsangin Plus Savings Bank posted a net loss of 8.7 billion won in the first half of this year. Although it improved from the 29.1 billion won net loss in the first half of last year, it remains in the red.
A savings bank industry official said, "If Sangsangin Plus Savings Bank fails to improve its soundness and remains within the oversight scope of the authorities and the KDIC, it could be forced to sell the company at a price lower than currently expected."