[Outlook]Sun may set for Korean banks

“I feel like a wonderer who has a long journey ahead when the sun is setting.”
This is what Yoon Jeung-hyun, the former chairman of the Financial Supervisory Service, said when he retired from the position on Aug. 3. He was the first person to serve his full three-year term since the financial watchdog was established after the financial crisis.
Not many government officials who are appointed instead of being elected serve the full length of their terms. This may be the reason why those government officials who serve full terms are congratulated. But still, Yoon seemed sad that there are many things left undone.
In an interview with the JoongAng Ilbo that he had before he left office, he lamented the fact that the policy separating financial and industrial capital had not been eased. By law, conglomerates are prohibited from owning banks and financial capital is banned from owning more than a certain percentage of shares in companies. To ease the policy was viewed as being favorable to conglomerates.
What highlights Yoon’s term in office is that he challenged the accepted order. In public conferences or to the media he openly endorsed easing the policy. In an interview with the JoongAng Ilbo three months ago, he said that Korea’s policy to separate industrial and financial capital is more strict than in other countries and the policy must be eased in order to unbind domestic capital, among other reasons.
Shortly before leaving office, he stressed that with the limits placed on it, the financial industry will not be able to grow as quickly as the government wants it to. Banning industrial capital from owning banks was unwise, Yoon said. That was certainly a different stance from that of Finance Minister Kwon O-kyu and other civil workers in the financial ministry who fervently oppose easing the current policy.
Yoon felt strongly about the issue, particularly because Woori Bank is to be privatized next year. The Woori Financial Group, the owner of Woori Bank, must legally be privatized before April of next year. In terms of share ownership only, Woori Bank is the only domestically controlled bank among commercial banks in Korea.
As of late June this year, foreign investors owned a total of 73.6 percent of the shares of Korea’s seven largest banks. Three among these are run by foreign capital. If we stick by the principle that industrial and financial capital should be separate, it is very likely that Woori Bank will be bought by foreign investors. It is very hard to find financial capital inside Korea that can afford to take over shares of the Woori Financial Group, which is worth more than 10 trillion won ($11 billion).
Yoon did not succeed in easing the policy but succeeded in making the issue an object of public discussion. Recently, experts in the financial, economic and academic fields have had active discussions on the matter. Last week, Shin Hak-yong and 13 other lawmakers proposed a bill to abolish the policy.
But it does not seem that the current policy will be torn down easily. So far, the policy seems have more support than opposition in society. Most of all, the Ministry of Finance and Economy and the Blue House are determined to stick to this policy.
In the past, some conglomerates borrowed money from banks and extended their business into a variety of fields, ending up going bankrupt. These cases remain an original sin, reinforcing the need to separate financial and non-financial capital.
However, a decade has passed since the financial crisis. Things are different now. Conglomerates have plenty of cash reserves. They do not need to borrow money from banks as in the past. Korea’s shipbuilding industry has become the world’s best. Korean mobile phones have become the world’s third-most competitive and Korean vehicles the world’s fifth-most competitive. But Korea’s financial businesses remain ranked at around the world’s 30th.
The policy of separating financial and non-financial capital must be re-examined in an attempt to change this situation. I don’t mean to rush to establish a Samsung Bank or a Hyundai Bank. What I want to say is that we need to find ways to make financial capital and industrial capital work together so we can make full use of conglomerates’ capital, manpower and know-how. This is not something that can be delayed endlessly. Yoon’s lament about the setting sun lingers in my ears.

*The writer is the senior business editor of the JoongAng Ilbo.