[DigitalToday reporter Lee Ji-young (이지영)] The Financial Services Commission will extend by 1 year the operating period of a special account for savings banks under the Deposit Insurance Fund. It plans to keep the special account, originally set to end at the end of this year, through end-2027 to settle remaining liabilities. With financial authorities and all financial sectors agreeing to take on additional burdens, related procedures are expected to accelerate. The savings bank industry plans to use the extension as a chance to speed up efforts to improve soundness.

On Tuesday, the FSC said it would pursue a 1-year extension of the special account after holding a meeting among financial sectors on handling the special account’s liabilities.

The FSC set up the special account during the 2011 savings bank insolvency crisis to clean up troubled assets. Its operating period was 15 years and was set to expire at the end of 2026.

But as 27.2 trillion won was injected during restructuring, more than the 15 trillion won initially expected, a deficit of about 1.2 trillion won to 1.6 trillion won is expected at the time the special account ends.

The FSC has reviewed options for handling remaining liabilities together with the Korea Deposit Insurance Corporation. At the meeting, it proposed extending the operating period by 1 year. As a result, all financial sectors that pay deposit insurance premiums, including banks, life insurers, non-life insurers, financial investment firms and savings banks, decided to participate for another year in repaying the special account’s liabilities.

Financial authorities explained that extending the operating period is the most reasonable option, given that the purpose of creating the special account is to restore the soundness of savings banks’ own accounts.

They judged that the remaining costs also need to be shared across financial sectors, considering the original intent of a joint financial-sector response to prevent past savings bank troubles from spreading into a broader crisis for the financial system.

Financial authorities forecast that, as a substantial amount of funds has already been recovered and deposit insurance premium support has continued, a 1-year extension alone would be enough to resolve the remaining liabilities.

◆Ultimately, the key is restoring soundness

The extension is seen as giving the savings bank industry room to breathe. Still, both inside and outside the industry, there are comments that, separate from the extension, the sector’s fundamental task is restoring soundness.

The savings bank industry has been speeding up the disposal of bad loans by launching a first joint fund for troubled real estate PF loans worth 33 billion won in January 2024 and then operating up to a sixth fund in succession.

In particular, last year it disposed of bad loans worth a total of 2.41 trillion won in four rounds.

More recently, the Korea Federation of Savings Banks invested directly to establish a specialist company to manage bad loans. It is expected to buy and dispose of troubled assets held by individual savings banks, and it has already begun work to gauge demand for sales for this purpose.

As it pursues the disposal of troubled assets, some soundness indicators such as delinquency rates are showing improvement. But as of the third quarter of last year, the delinquency rate stood at 6.90 percent, still at a high level. The ratio of substandard or below loans also reached 8.79 percent.

While the extension reduces institutional burdens, an analysis says the industry’s practical tasks are cleaning up PF-related troubles and stabilising delinquency rates. There are comments that a clear improvement in soundness indicators must follow to restore trust in the sector.

Regarding the extension, a federation official said, "We are grateful that all financial sectors have once again joined forces to help the savings bank sector through its difficulties." The official added, "We will continue to work to improve savings bank soundness so that support from each financial sector is not in vain."

The FSC said, "We plan to continue consultations by explaining to the National Assembly the progress and need for the extension so that revisions to the Deposit Protection Act to extend the special account’s operating period can be carried out smoothly."