The Financial Supervisory Commission said the "non-viable" commercial banks would be taken over by healthier ones, which would absorb the failed institutions' loan portfolios and low-level employees.

Kyungki Bank, Dongnam Bank, DonghwaBank, Daedong Bank and Chung Chong Bank had failed to pass a review, a commission statement said. Their assets and key operations would be absorbed by five other big banks -- Dongnam's by Housing and Commercial Bank, Daedong's by Kookmin Bank, Donghwa's by Shinhan Bank, Kyungki's by KorAm Bank and Chung Chong's by Hana Bank, it said.

The commission also said it had approved plans submitted by seven other banks on the condition they submit plans on how they would strengthen operations, including recapitalisation and revamping their management, by the end of July.

Those seven banks areCho Hung Bank, Commercial Bank of Korea, Hanil Bank, Korea Exchange Bank, Chungbuk Bank, Kangwon Bank and unlisted Peace Bank of Korea.

State television reported that police have been deployed around the premises of the failed banks to deal with panic runs on the banks or possible labour unrest. The announcement follows the designation earlier this month of 55 non-financial companies which are being denied further bank credit and allowed to go under.

The listing of banks and companies as non-viable is at the core of corporate and financial restructuring mandated under the nearly $60 billion bail-out from the IMF.

South Korea was among several Asian nations to get IMF aid after a region-wide currency implosion sent their economies into a tailspin. US treasury secretary Robert Rubin was expected to arrive in South Korea on Tuesday on a four-nation tour designed to take the ailing region's economic pulse a year after the devastating financial crisis struck.

In an effort to overcome labour resistance andjitters among depositors, the Korean financial watchdog chief said the government would guarantee the interest and principal on deposits with the five banks and low-level staff would be absorbed by the takeover banks. "Restructuring shaky financial institutions, which have, in fact, supported the reckless management of corporations, is an urgent task that can no longer be left unsettled," Commission chairman Lee Hun-jai said in a televised speech.

"Most working-level employees will be given an opportunity to work at the absorbing banks without a big disadvantage," he said. Under Seoul's IMF accord, senior management jobs of failed firms are not guaranteed in takeovers by healthier institutions.

But employees at the five banks staged overnight sit-in protests and the powerful labour umbrella group, the Korean Confederation of Trade Unions (KCTU), demanded re-employment of all staff members.