A Crisis Cripples South Korea's Savings Banks

On the day in May she was supposed to have appeared before prosecutors for questioning, an executive of a shuttered South Korean savings bank hanged herself with her scarf in a Seoul motel. The woman, identified by the police only as “Kim,” was a credit officer at Mirae Mutual Savings Bank, whose chairman was caught fleeing to China in a fishing boat three weeks earlier. She’s the latest casualty in a scandal hitting the periphery of Korea’s banking industry for more than a year.

Since early 2011, regulators have closed 20 Korean savings banks, where risky real estate bets gone bad have wiped out the savings of many ordinary Koreans. Even the prime minister saw money disappear. Prosecutors’ probes have uncovered cases of illicit lending and lax oversight, leading to the indictments of nearly 200 people and at least two jail sentences. Four bank executives have committed suicide, according to police, while more than 88,000 depositors and bondholders, many of them retirees, saw 1 trillion won ($857 million) vanish. “Everyone’s become a victim,” says Nam Joo Ha, an economics professor at Sogang University in Seoul. “Regulators lost the people’s confidence. The savings bank industry lost trust, a financial company’s most important virtue, and the people lost their money.”