Hearings are not a blame gameTop economic and financial officials were grilled at a two-day National Assembly hearing that delved into regulatory and policy faults in suspending eight savings banks. Minister of Strategy and Finance Yoon Jeung-hyun, Financial Services Commission Chairman Kim Seok-dong and their predecessors were questioned.
It was the current legislature’s first policy hearing, and its aim was to find the cause of the savings bank industry’s collapse and to debate countermeasures. But bureaucrats were busy explaining themselves to avoid blame while legislators turned the hearings into a political circus to get on television.
The hearing was, in fact, devoid of serious debate on the industry’s future. It had a lot to address - the cause of the bank failures, the government’s shortcomings, repercussions and steps to prevent further damage. The industry is still a sinking ship. Eight banks were suspended in February, and others are undergoing restructuring. More can shut down without quick action.
The industry’s demise has exacted a domino effect on construction companies, collapsing under their bad loans. Commercial banks will now have to consider establishing a bad bank worth 10 trillion won ($9.3 billion) to protect themselves from further losses. The trigger of the meltdown are project financing loans.
But the problem is that the exact size of such loans and potential bankruptcies are not exactly known. Authorities estimate the amount of project financing loans at about 12 trillion won, of which 1 trillion won are under risk of turning sour. If so, legislators should have asked the authorities if the problem would be solved if 1 trillion won were injected. A year ago, the government said that project financing loans worth about 4 trillion won were risky, but spent over 5 trillion won to clean up the problem.
The hearings also failed to ask authorities if the 10 trillion won would be the last public funds needed to clean up the industry. They didn’t even discuss the problems in loan structure and lending practice. It still remains questionable how construction companies were able to borrow money for projects they had not even begun or without clearly explained revenue and repayment plans. Parliamentary hearings cannot solve everything. But they should at least be more than a podium for blame games. They should have uncovered the cause and presented insight to solve the problem. We hope we can see some sensible work and outcome from parliamentary hearings next time.