Allies of Woori regional banks muster at forum

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Allies of Woori regional banks muster at forum

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As the government beefs up its efforts to expedite the privatization of Woori Financial Group, controversy is rising over how it should dispose of two regional banks affiliated with the country’s largest financial holding company.

Earlier this month, Financial Services Commission Chairman Shin Je-yoon said the process of privatizing the group would begin with selling Kyongnam Bank and Kwangju Bank, followed by Woori Investment and Securities and its flagship Woori Bank affiliate.

Since Shin made his remarks, the future of the two regional banks has become a hot potato issue. On Monday, the Korean Financial Industry Union put together an open forum at the National Assembly members’ office building in Yeouido, western Seoul, inviting scholars and politicians to discuss the reasons why Kyongnam Bank and Kwangju Bank should not be merged with another financial group or purchased by foreign capital.

“We believe that regional capital should be invested [in buying each of the two regional banks] and they should be operated independently for the sake of boosting the regional economy,” the industry union said in a statement. Kyongnam Bank is based in South Gyeongsang, while Kwangju Bank is based in South Jeolla.

At the forum, Jung Sung-chang, a business management professor at Chonnam National University, said regional banks contribute much in boosting regional economies and that if other commercial banks or foreign capital buys Kyongnam Bank and Kwangju Bank, there could be unwanted side effects.

According to Jung, over the past five years, commercial bank lending to small and midsize firms in the South Gyeongsang region grew by 873.9 billion won ($772.6 million), while regional banks’ lending to SMEs over the same period jumped 5.3 trillion won. Regional banks include Kyongnam Bank, Daegu Bank and Busan Bank, while commercial banks include KB Kookmin Bank, Woori Bank, Hana Bank and Shinhan Bank.

In the Gwangju area, SME lending by commercial banks dropped by 33.5 billion won, while lending by Gwangju Bank alone increased 1.6 trillion won, Jung said.

“We should fully respect the government’s three principles for privatizing Woori Financial, but what is of foremost importance is to make sure the privatization contributes to the development of the local financial industry, in other words, the regional financial industry,” he said.

The other two government principles are recouping the maximum amount of state funds used to buy Woori Financial shares and privatizing the financial group quickly.

The industry union, meanwhile, is concerned that if regional banks are sold to other commercial banks it will eventually end up benefitting other big financial institutions. It also worries that if Kyongnam Bank and Kwangju Bank are merged into other financial institutions, many of their workers will be laid off.

In the course of the Asian financial crisis in late 1990s, many regional banks were merged into large commercial banks.

In 1998, Chungcheong Bank merged with Hana Bank, while Gyeonggi Bank merged with Hanmi Bank, which was then merged with Citibank in 2004. In 1999, Chungbuk Bank and Kangwon Bank merged with Chohung Bank, which merged with Shinhan Bank in 2005.

Despite industry concerns, a government official said selling Woori Financial Group affiliates will be based on price.

“Bidders that bid the highest price will get what they want,” the official said.

BY LEE EUN-JOO [angie@joongang.co.kr]

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