Gov¡¯t pushes for mergers of healthy banks

The government has once again pressured currently healthy banks to merge with others and has sent jitters through the affected institutions, including Kookmin Bank and the Housing and Commercial Bank. In addition, the government has issued a firm warning to the banks that show signs of dragging their feet or reneging on their responsibility of restructuring.

Chairman of the Financial Supervisory Commission (FSC) Lee Keun-Young urged various bank heads at a conference on Saturday to merge with other institutions for synergetic benefits as there is no guarantee that present health will translate into future health.

However, as smaller healthy banks such as Koram and Hana have already entered into negotiations for a mergers while Shinhan is currently still pursuing self-enhancement measures through talks with other secondary financial institutions, finding merger mates for Kookmin and the Housing and Commercial may prove difficult.

As such, the bankers have interpreted the statements of FSC Chairman Lee as a message that the mergers for Kookmin and the Housing and Commercial should take place sometime next year after the normalization of the Korean Exchange Bank and Cho Hung Bank, which are currently under a government workout program.

In fact, the president of the Korean Exchange Bank, Kim Kyung-Lim, has left open the possibility of seeking a strategic merger with another healthy bank some time next year.

Given the situation, Housing and Commercial Bank President Kim Jung-Tae¡¯s revelation Nov. 23 at a meeting sponsored by the Seoul Economist Club that the merger partner ought to have extensive dominance in the retail banking has renewed bankers¡¯ interest as it is a shift from his earlier stance. Many in the banking industry have interpreted the remark as being either an attempt to renew the merger effort with Kookmin or a sorrowful reflection on Housing and Commercial¡¯s failed bid to merge with Hana or Koram.

Meanwhile, in response to banks¡¯ attempts to avoid taking part in the government¡¯s effort to normalize the 237 companies (revealed on Nov. 3) judged to have potential for resuscitation, the FSC has warned that the banks would be held liable for the bankruptcies of companies that are forced to close due to inadequate support by banks rather than the moral hazards of the companies¡¯ management.

Although the FSC has accused the banks¡¯ management of showing signs of moral hazards as the banks have attempted to avoid the purchase of loans by the fund management corporation to the workout companies, many expect a heated debate as banks have only adhered to the original measures for the reduction of insolvent companies.

Park Hyeon-Jin witness@donga.com