[EDITORIALS]Clean Up State-Run Banks

It is disappointing to learn that the Board of Audit and Inspection found that the banks with the government as their largest shareholders, such as the Korea Development Bank and the Industrial Bank of Korea, are the worst managed. The news is discouraging all the more because it comes after an investigation that showed that officials at the 15 institutions which are required to support small and medium-size companies, including Kookmin Bank and the state-run Small Business Corp., had made great profits by purchasing shares in technology start-ups for below-market prices in exchange for supporting the firms. Those investigation results make us skeptical about the fruits of the financial sector restructuring, which the government began during the 1997-98 foreign exchange crisis, and that has cost about 150 trillion won ($115.4 billion).

The inspection of state-run banks revealed that similar blunders have been made every year. For example, bank loans worth billions of won to companies in default were dishonored. The banks repeatedly lent a great sum of money to the companies to whom the banks would never have provided a loan if they had inquired into the firms' financial status. The banks should be severely punished for such loans.

The Korea Development Bank should be called to account for the tens of billions of won it lost from investments in Daewoo bonds. The blunder may be partly excused because the state-run bank is in charge of the government's bailout projects for debt-ridden companies, including the rollover of the maturing bonds of such firms. But the Korea Development Bank experienced a net loss of 1.4 trillion won last year. If a bank wants to operate normally, it must be better managed.

In addition, the state-run banks have been blamed for being too generous in assisting their officials. There is nothing wrong with a bank's staff members sharing the profits from a bank's good management. But too often banks with poor performances provide housing loans to an official who already owns a house. In order to prevent a recurrence of such wrongdoing, the government should reexamine the management situation of state-run banks, which have been free from the government's inspection.