Something is seriously wrong in South Korea’s banking sector — with the people and the numbers.South Korean regulators have unveiled corrupt and illegal financial practices used by bankers to prop up their weak banks, promptly placing many top South Korean bankers in the federal spotlight, Bloomberg reported. That scrutiny has lead to a rash of suicides. There have been at least four.
The 2008 rupture of the global credit bubble, severely softened South Korean real estate markets, leaving debtors underwater or in default.
Korean banks began to sell subordinate bonds a attractive rates to cover their losses. That’s when government officials started to realise something was happening.
Throughout the last year, regulators have uncovered several cases of illicit lending and lax oversight, leading to nearly 200 indictments.
In response, South Korean banking regulators have closed the nation’s 20 weakest banks, resulting in massive losses for savings bank customers.
The bank closings erased many uninsured depositors’ and bond owners’ savings, much of which belonged to working class citizens’ retirement funds. There are 88,000 depositors and bank bond owners with funds exceeding the 50 million won (~$43,000) Korean Deposit Insurance Corporation’s(KDIC) personal deposit insurance maximum, totaling to a combined loss of $857 million.
With failing banks and numerous arrests, a total of four bank executives have committed suicide. All four did so while being summoned by prosecutors.
- In September of 2011, the president of Jeil 2 Savings Bank, jumped from his Seoul office building six stories to his death.
- A 50-year-old credit officer for Tomato 2 Savings Bank hung himself after being summoned by prosecutors in November.
- The chairman on Ace Mutual Savings Bank was found dead in January in a Seoul hotel room before he was supposed to be questioned for allegations of illicit lending and accounting fraud.
- A credit officer at Mirae Mutual Savings Bank hung herself with her scarf in a Seoul hotel room in May. She was found on the day that she was to report to prosecutors investigating illegal lending.
The situation in South Korea could continue its downward spiral, especially since dramatically fewer South Koreans are willing to deposit their funds in savings banks or risk-seeking enough to purchase bank issued bonds. A 65-year-old retired junior-high school teacher in Korea was quoted saying, “To an old lady like me, 1 to 2 percentage points of extra interest was big,” but, “Now I realise safety is the most important. I’ll never deal with savings banks again.”
The Korean government needs to speedily repay the funds insured by the KDIC to the over 88,000 depositors and bond holders. If not, the whole system could fall apart.
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