The Financial Services Commission (FSC) imposed a six-month suspension on seven ailing savings banks, including the major Jeil and Tomato savings banks.

The commission said in a statement the decision was a result of its review of 85 savings banks to identify which ones are viable.

It issued similar suspension orders on nine savings banks this year, on the basis they had inadequate liquidity. The savings bank industry, which consists of 105 small lenders, is struggling with an increasing number of real estate loans not being repaid as property prices fall.

The FSC has asked the finance ministry to earmark 500 billion won ($451 million) for a special fund to shore up the banking sector in next year's budget.

If the suspended savings banks can survive independently by means such as new share issues within 45 days, they will be allowed to resume normal business, the FSC statement added.

The savings banks account for only 2.8 percent of the financial services industry in South Korea, Asia's fourth-largest economy, but the government faces criticism for its lax handling of the sector ahead of next year's parliamentary and presidential elections.

Copyright Reuters, 2011