KDB, IBK are dropped from public agencies list

State-controlled banks were removed from a list of “public institutions,” after a strong push by KDB Financial Group Chairman Kang Man-soo to gain operational autonomy in order to prepare for privatization.

The decision is expected to spark charges of favoritism by institutions such as the Korea Exchange, which is not state-owned but is subject to government reports and audits.

Analysts also said the decision could begin a cascade of other state-controlled firms demanding removal from the list to gain freedom from governmental oversight.

Korea Development Bank, its holding company KDB Financial Group and the Industrial Bank of Korea (IBK) were removed from the official list of public institutions managed by a committee under finance minister Bahk Jae-wan late yesterday.

Interest has mounted over the decision since Jan. 17, when KDB Chairman Kang said he would “stake [his] position” on having Korea Development Bank removed from the list to gain autonomy in personnel and budget decisions in preparation for the bank’s privatization.

KDB announced at the start of 2012 that it would undertake an initial public offering within this year. IBK is also nominally in the process of pursuing privatization, though it has no concrete timetable.

Inclusion on the list of public institutions makes an organization subject to yearly performance reviews by the government, audits by the Board of Audit and Inspection, and government involvement in budget planning and operations.

The decision has aroused protests from the employee’s union of the bourse operator Korea Exchange.

“The government has tied up Korea Exchange as a public institution for years even though it doesn’t have any stake in it, but the KDB has been removed from the list after just 10 months with Kang serving as chairman,” said a spokesperson for the KRX employee’s union.

Analysts also noted that removal from the list means the government loses its oversight power against possible profligate practices, such as skyrocketing salaries.

In fact, Korea Exchange was included as a public institution in 2009 after it used considerable profits it earned on pay raises and bonuses.

KDB insisted that unlike KRX, the 100-percent government stake in KDB subjects the bank to parliamentary inspections and state audits, ruling out such profligacy.

By Lee Jung-yoon [joyce@joongang.co.kr]