[FOUNTAIN]400 billion won is trouble

"Four local banks make 400 billion won [$325 million] in loans to ailing Hanbo Steel Co."

This is a headline of a front-page article in the JoongAng Ilbo edition on Dec. 14, 1996. The lead told the story. "Four local banks, Korea Development Bank, Chohung Bank, Korea First Bank and Korea Exchange Bank, made loans of 400 billion won, 100 billion won each, to Hanbo Steel Co., which is facing a cash shortage," it read, and continued by saying that the purpose of the loan was to prevent a bankruptcy at the firm. That was the first confirmation that there was a financial crisis at the Hanbo Group, although rumors to that effect had been floating around business circles and in the stock market.

A month after that report, on Jan. 23, 1997, Hanbo Steel finally went bankrupt and left its banks holding 5 trillion won in bad debts. Hanbo's bankruptcy was a foreshadowing of the 1997 financial crisis that struck Korea's economy. Politically, Hanbo's collapse gave a tremendous shock to President Kim Young-sam's administration, including the jailing of his second son, Kim Hyun-chul.

Last week, another loan story broke on the front pages of Korean newspapers. There were many stories about Korea Development Bank's irregular 400 billion won loan to Hyundai Merchant Marine, discussing the rights and wrongs of the lending and what the money might have been used for. Again, there are allegations of political intervention with the bank to make the loan.

The rebuttals by persons involved in the matter are also similar to those in the Hanbo case. In 1996, Hanbo and its lenders admitted the loan's existence but emphasized over and over again that the loan was made on an "ordinary and normal basis."

In the Hanbo case, the prosecution found out that a former lawmaker and aide to President Kim Young-sam, Hong In-kil, arm-twisted the secretary to the president for economic affairs and the chief executive officers of the four banks to make the loans. Chung Tae-soo, the founder of the Hanbo Group, said in a hearing held in 1999 that he had given 15 billion won to President Kim Young-sam. Several bank CEOs who asserted that the loan was normal were detained for dereliction of duty and bribery.

What is the truth about the 400 billion won loan to Hyundai? Time will tell, but whatever the truth may be, bankers will probably begin to run away from any loan amount of 400 billion won.

The writer is a head of the Forbes Korea Team of the JoongAng Ilbo.

by Sohn Byoung-soo