Slight Panic at Another Savings Bank
Jeil Savings Bank is in some trouble, according to this report. The Seoul Gyopo Guide has reported on some of the causes, and potential effects of runs on the savings banks in Korea.
Still Not a Systematic Problem, But…
Savings banks are a very small percentage of the deposit base in Korea. That provides little solace for those depositors in Jeil Savings Bank, who may not be able to withdraw their savings easily. The main issue is that the weakness in almost all savings banks in Korea are at risk because of the overwhelming number of construction loans that sit on the banks’ books. That is a problem because many of the borrowers cannot repay due to discontinuation of the construction sites themselves, or poor sales of the proposed units being constructed.
This receives almost no attention outside Korea. It is understandable since much of Korea’s GDP and consumption occurs in Seoul. However, the government has again proposed measures to bail out the banks that have made these project loans. In the past, KAMCO (Korea Asset Management Corporation) was formed and has been largely successful in helping the domestic financial industry. Whether KAMCO will be summons again or whether an alternate plan can be put in place.
No Easy Answers
The companies that are contracted to build these large projects are very important to Korea. Korea’s president, Lee Myung-bak, was once the CEO of an E&C (Engineering and Construction) company. The Korean government itself has purchased many of the empty units of the “new cities (신도시)” around the country. Total abandonment of failed projects would jeopardize those employed by the E&C companies. Those projects are now largely located away from Seoul, and are in areas which are losing young citizens at an alarming rate. You can go to the countryside, and there ratio of old to young is slightly alarming. In short, it is difficult for the government to stop the vicious circle that has begun to spin; it is really a matter of limiting the consequences, and not a matter of trying to reverse the situation. For the depositors of Jeil Savings Bank, it may be too late.