Park administration abandons KDB privatizationThe privatization of Korea Development Bank and its de facto holding company, a grand ambition aggressively pushed by the previous administration, has officially been abandoned.
According to the Ministry of Strategy and Finance yesterday, KDB, its holding company and the Industrial Bank of Korea have been recategorized as public institutions two years after they were removed from that list. Six other institutions were added to the list, bringing the total number of public companies and institutions to 304.
KDB and IBK will come under tighter government surveillance this year, with attention being paid to its pay hikes, as a result. The managements of the banks will be reviewed and evaluated.
The Ministry of Finance said it relabeled the banks as public institutions because their privatization is no longer being pursued. The former Lee Myung-bak administration’s deadline for the privatization of KDB Financial Group was May 2014.
KDB was taken off the list of public companies and institutions in January 2012, the last year of the Lee Myung-bak administration. It was reported that then-KDB Financial Group Chairman Kang Man-soo, who was not only the first finance minister of the Lee administration but also an economic mentor to the President, pushed strongly for the delisting.
The reason given two years ago was the pursuit of privatization. This allowed the management of the banks a freer hand in decision-making and meant less government intervention.
The Lee administration pushed for privatization in the hope of creating the nation’s first investment bank with global competitiveness, like a Korean JPMorgan, Morgan Stanley or Merrill Lynch.
Kang stressed frequently that Korea’s financial industry could never grow into a global player with commercial banks whose main incomes were based on loan interest. He said other businesses such as financial consulting companies, including those in mergers and acquisitions, were crucial for the industry’s future development.
In June 2008, just four months into the administration, the Lee government unveiled its privatization plan.
Even after the global crisis in late 2008, the Lee administration pushed ahead with the scheme. It passed a special bill at the National Assembly in April 2009 that not only allowed KDB to seek profit-making commercial businesses such as retail banking but also paved the way to establish a holding company, KDB Financial Group.
The idea wasn’t too popular with the Park Geun-hye administration, which became clear early last year. The Park government put the issue on the back burner, and in August decided to re-merge the spun-off Korea Finance Corporation (KoFC) back into the KDB. This move raised the possibility that the government would be abandoning the idea of privatization.
The Lee government separated the KoFC from the KDB in 2009 to reduce the bank’s policy financing business. Those are financial projects that the government makes to support certain area of business or industry. The Park administration said the work of the KDB overlapped with the KoFC.
There have also been complaints about the growing cost of privatizing KDB, which political circles estimate at over 70 billion won ($64.7 million).
Members of the Park administration, including top financial regulator Shin Je-yoon, also expressed uncertainty over the success of an initial public offering by the bank.
Yesterday’s decision is considered the end of the bank’s privatization.
Meanwhile the government said it will continue to hold Korea Exchange, the nation’s stock market operator, as a public institution.
BY LEE HO-JEONG [email@example.com]
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