The financial authorities are weighing how to handle 2 trillion won in liabilities that were not recovered or repaid from funds provided to resolve the 2011 savings bank crisis. Industry officials warn that if the savings bank sector has to shoulder the entire 2 trillion won, the burden could be passed on to consumers through loan interest.
According to the financial sector on the 20th, the Financial Services Commission and the Korea Deposit Insurance Corporation (KDIC) are preparing follow-up measures for the "special account for savings bank restructuring," whose operation ends at the end of this year. KDIC created a special account during the 2011 savings bank crisis to restructure insolvent savings banks and injected 27.2 trillion won in support funds, but about 2 trillion won remained unrecovered as of the end of last year.
The Financial Services Commission (FSC) and KDIC are reviewing two options: extending the operating period so that liabilities are repaid with deposit insurance premiums (KDIC premiums) paid by insured financial companies (those covered by deposit insurance), or ending the operation so that savings banks bear all the liabilities.
If the financial authorities end the operation of the special account, the remaining 2 trillion won in liabilities will be transferred to the general account where the deposit insurance fund for savings banks is accumulated. However, because most of the KDIC premiums paid by savings banks have been used to repay special account liabilities, the general account is also in the red. Considering that the general account liability stood at 1.8979 trillion won at the end of 2024, savings banks would have to repay more than 3 trillion won when adding the 2 trillion won in special account liabilities.
If the liabilities that savings banks must bear increase, the KDIC premium rate will rise. KDIC presents, by sector, a target for the deposit insurance fund to be accumulated 10 years ahead and sets the premium rate at a level that can meet the target. As liabilities grow, more KDIC premiums must be paid.
The heavier KDIC premium burden is likely to be passed on as loan interest. Savings banks classify part of the KDIC premiums they pay as statutory expense and reflect it in loan interest. According to Heo Yeong, a lawmaker on the National Policy Committee of the Democratic Party of Korea, among the 963.1 billion won in statutory expenses included in loan interest by the top 10 savings banks by credit volume from 2020 to the first half of last year, KDIC premiums accounted for 731.3 billion won (75.9%).
If the operation of the special account is extended, the structure in which all insured financial companies, including savings banks, repay the liabilities will continue. Criticism could arise that other sectors must again bear the losses that occurred in the savings bank sector. Extending the operating period would require amending the Depositor Protection Act, so it would also have to pass the National Assembly.
An official at the Korea Federation of Savings Banks said, "To ease concerns about passing on higher loan rates, we revised and implemented the model code for loan rate systems," and noted, "We ensured KDIC premiums would not be reflected when calculating loan rates."