Financial groups mix affiliate funds

Nearly half of local financial companies’ capital comes from their affiliates, a lawmaker said yesterday citing data from the Fair Trade Commission.

And of that affiliate-funded capital, more than 70 percent comes from nonfinance affiliates, said Park Won-suk of the Justice Party, as he called for the toughening of a law that stipulates the separation of industrial and financial capital.

In Korea, a business group whose combined capital is 5 trillion won ($4.75 billion) or more is subject to limitations on investments among its affiliates.

The FTC survey cited by Park covered 113 financial affiliates of those large business groups. Together, those affiliates have 15.69 trillion won in capital, and 7.63 trillion won, or 48.65 percent, of that amount came from affiliates of the same business groups to which they belong.

Of that 7.63 trillion won, 5.41 trillion won, or 70.9 percent, came from nonfinance affiliates.

Samsung had the most financial affiliates with 12. Those financial groups received 24 percent of their capital through nonfinance affiliates of Samsung, Park said.

For the family-run conglomerates, the owners and their families contributed only 3.1 percent of the capital for their financial affiliates, Park said. In the case of Lotte, only 0.83 percent of the financial affiliates’ capital came from the controlling family, but upward of 84.26 percent of their capital came from nonfinancial affiliates.

The separation of finance and industrial capital, one of the key elements of Park Geun-hye’s “economic democratization” drive, has taken on more urgency since the financial meltdown of Tongyang Group earlier this year.

The conglomerate is suspected of having used its financial arms improperly to help its cash-strapped nonfinancial companies. The FTC survey showed that Tongyang’s financial affiliates provided 27 percent of the capital to Tongyang Inc., the group’s de facto holding firm.

“The head of the large corporations and their families, despite their meager role in capital financing, is wielding a controlling influence over their financial affiliates via nonfinance affiliates,” said Park. “And the finance affiliates are again helping finance their nonfinance affiliates.”

The surveyed financial affiliates provided 385.5 billion won in capital for their nonfinancial affiliates, Park said. They also made loans worth 310.2 billion won for their nonfinancial affiliates, he said.

“We need to come up with a legal system which can oversee the whole of business groups and strengthen the review process for the adequacy of the largest shareholders of finance affiliates of local business groups,” Park said.

BY MOON GWANG-LIP [joe@joongang.co.kr]