S.Korea savings bank debacle claims life of executive

by Reuters
Friday, 23 September 2011 06:26 GMT

By Dahee Lim

SEOUL, Sept 23 (Reuters) - The chief executive of a South Korean savings bank that was suspended on Sunday jumped to his death on Friday in an apparent suicide, highlighting intense pressure on troubled junior lenders and regulators from enraged customers.

A few dozen customers of Jeil 2 Savings Bank were in a queue at an employee entrance hoping to withdraw their money when the body of Chung Ku-haeng hit the pavement near the head office's shuttered main door in central Seoul, shocking witnesses.

"It was so frightening," said Lee Mee-sook, a witness at the scene. "I didn't know at the time it was the bank chief."

While the savings bank debacle has had little impact on the financial system of Asia's fourth largest economy, it has been a further blow to the political credibility of the conservative Lee Myung-bak government, which has come under fire for its perceived inability to stop record-high inflation and a growing wealth gap.

Jeil 2 and its sister bank, the listed Jeil Savings Bank were among seven banks slapped with temporary suspensions by financial regulators on Sunday, leaving the sector reeling from a sharp worsening of financial credibility after seeing its asset quality deteriorate sharply from poorly performing construction projects.

Since Monday, thousands of customers, many of them elderly lured by savings banks' promise of higher returns than those offered by more soundly-run commercial banks, swarmed the head offices and branches of the lenders, hoping to withdraw their money.

National deposit insurance covers customers for only up to 50 million won (${esc.dollar}42,400) in principal and interest, leaving many depositors at the risk of losing their investments if any of the banks go into receivership.

The latest closures bring to 16 the number of savings banks that have been suspended this year, many of them coming after pledges by the regulators that there would be no further closures, aggravating customer anger.

A combined 595 billion won in deposits had been withdrawn from 91 savings banks since Monday as of noon on Friday, according to the regulatory Financial Supervisory Service.

The pace of withdrawals slowed sharply since the start of business on Monday but Friday was the fifth straight day of customers lining up to get their money back.

The country's prosecution has set up a special team of investigators to probe mismanagement and allegations of corruption at the seven savings banks.

A corruption scandal at Busan Savings Bank earlier this year claimed some of Lee's closest aides as prosecutors' probe of a lobbyist's alleged illegal payoffs to top government officials expanded.

Lee's chief public affairs secretary was summoned by the prosecutors this week under graft allegations, after he tendered his resignation last week.

(${esc.dollar}1 = 1179.850 Korean Won) (Writing by Jack Kim; Editing by Jonathan Hopfner)

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