Korea savings bank suspensions push deposits up

Thed suspension of ailing savings banks stirred investors to seek safer financial institutions inn Korea resulting to an increase in news deposits reports Yonhap News.

The Financial Services Commission suspended seven savings banks last Sunday, citing their heavy debts and insufficient capital adequacy ratios. Although the government guarantees deposits up to 50 million won  or US$43,573, the move spurred fears of massive withdrawals that could lead to a bank run.

The combined amount of new deposits into the country's five largest banks -- Kookmin, Woori, Shinhan, Hana and Korea Exchange -- stood at 698.3 trillion won as of Monday, up 1.3 trillion won from the previous working day, according to industry data.

The data also showed that lenders saw new deposits increase by 1.6 trillion won on Friday, which puts the total deposit inflow for the two-day period to nearly 3 trillion won, almost four times larger than the total amount logged between September 1-15.

Market watchers said the rise in deposits comes on the heels of wary investor sentiment following the savings banks' suspensions and could help bolster the larger banks' profitability.

   "The restructuring of the sector could stoke appetites for safer management of assets and lead to an inflow of capital into banks. The inflow could accelerate if the government increases market liquidity to prevent a credit crunch. These capital flows are likely to improve banks' net interest margin," said Seo Young-soo, an analyst at Kiwoom Securities Co., adding the trend is likely to continue for the time being.

Meanwhile, the financial watchdog said withdrawals from savings banks have slowed as customers calm.

The total withdrawals from the 91 savings banks still operating came to 104.4 billion won as of 4 p.m., down from 188.2 billion won on Tuesday, according to the Financial Supervisory Service.

Customers of the suspended savings banks are eligible to recover provisional deposits up to 20 million won starting Thursday.