Restructuring Has Gone Astray

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Restructuring Has Gone Astray

Financial sector restructuring is losing its direction. The government seemed set to push ahead with its restructuring plans by putting such financially unhealthy banks as Hanvit Bank and Peace Bank under the control of a single holding company. It is now said to be mulling over a plan to merge them with healthy banks as their subsidiaries. The names of the banks that look likely to be partners under this merger plan are already being circulated and labor unions from both sides are promising strong resistance. Financial sector restructuring is in disarray.

The plan to merge troubled banks with healthy banks is worth looking at, but the idea of placing unhealthy banks in one holding company, leaving the causes of their failings intact, carries the danger of creating one huge unhealthy bank. Merging these banks instead with healthy ones, which are run under a different management style, may be a viable alternative. We recommend, therefore, that a variety of restructuring options and their implementation be discussed.

However, there are questions about the government''s preparedness and the efficiency with which it will implement any restructuring plan. When was it that the government set a year-end deadline for financial sector restructuring and announced its plan centered on the idea of holding companies? Now, with only three weeks left to the deadline, the government wants to put up yet another option for discussion. We cannot help but ask this question: What has the government done so far? The government will certainly fail to meet its year-end deadline when both kinds of banks and their labor unions are strongly opposed to the idea of mergers.

The government should have thoroughly deliberated the composition of the holding companies before declaring that such companies would be the centerpiece of financial restructuring. In the process of such deliberations, the government might have identified the efficiency of various forms of holding companies, including mergers between unhealthy and healthy banks. The government only created further confusion by promulgating its idea of financial holding companies before carrying out such a process.

On top of this, the government''s idea of financial holding companies raises doubts about efficiency. The failings in the financial sector cannot be corrected without cutbacks in the work force and the number of branches. The healthy banks therefore will probably not respond positively, or at least not willingly, to the government''s merger plan. Even if they agree to the mergers, they are certain to ask for more public funds than the government has set aside. The government also plans first to launch a financial holding company and later rearrange them, according to whether they are retail or non-retail, next October. This two-stage implementation will only increase the burden on taxpayers.

The government should abandon this expensive plan and follow the principle that bad credit should be cleared up. Mergers between healthy and unhealthy banks should be conducted as purchase and acquisitions. If this method is not possible, those without a reasonable business outlook should be forced to close. If the government is set on going ahead with its original plan for a financial holding company, it should bring forward its implementation, which is currently due for completion in October next year. What is critical is the government''s strong resolution to push ahead with restructuring, not the actual deadlines. The market is wise enough to wait as long as it is assured of that resolution.

by Song Chin-hyok

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