No regional favoritism this time

The government kicked off another attempt to privatize Woori Financial Group - its fourth - by offering to sell Kyongnam Bank and Kwangju Bank separately from the financial group. The Korea Deposit Insurance Corporation will be receiving bidders for the two local banks, each expected to fetch about 1.1 trillion won ($979.5 million) to 1.2 trillion won. Offloading the smaller regional banks is expected to facilitate the sales of Woori Group, which is worth nearly 10 trillion won. The sales of the two local banks would be a crucial starting point in the privatization of Woori, after years of delay caused by its mega-size. But if political and regional interests jeopardize the new sales attempt, the long-awaited privatization could be impossible.

So far the signs are not good. More than 15,000 residents, politicians and local businessmen in South Gyeongsang province and Ulsan held a protest over the weekend demanding that Kyongnam Bank be returned to its home base. Hong Joon-pyo, governor of South Gyeongsang, also threatened that the provincial government will pull its savings from Kyongnam Bank if Busan Bank or Daegu Bank takes over. Local businessmen are also demanding preference be given to local bidders in acquiring Kwangju Bank. They flatly ignore the financial authority’s repeated announcement that sales will be based on the best price and not political or regional considerations.

Challenges from the political and regional sector were already predicted. That’s why the central governments in the past tried to sell the Woori Group in a block instead of units. A former chief of the Financial Supervisory Service said the government feared that the privatization process of the Woori Group - which was created as a holding company in 2001 for several regional banks and financial companies the government bailed out after the Asian financial crisis in 1997-98 - could be derailed if regional banks were sold separately due to political interests.

Attempts to sell the government stakes in Woori failed in the past four administrations. None of them have aggressively pursued privatization due to a lack of sufficiently large bidders and fears of controversy over favoritism. The financial group - despite its huge size - has been losing competitiveness over the last two decades because of revolving-door leadership appointments.

We urge the government not to shy away from the sales of the two local banks due to regional and political resistance. Another failed deal could cost the Korean financial industry another five years of competitiveness.