‘Technology financing’ is failing
Woori Bank presented an investor relations (IR) event in the Middle East and Europe, but attendees said the foreign investors there reacted coldly to investing in Korea. The event had special meaning. After four failed privatization attempts, the bank was once again inquiring how foreign sovereign funds and pension funds responded. The Public Fund Oversight Committee chairman attended the presentation on behalf of the government. But anticipation turned into disappointment.
Foreign investors said the Korean financial industry is unattractive as profit is shrinking and there are too many ambiguous regulations. At least one of the two factors, high profits or stability, attracts investment. In the low-growth trend of the Korean economy, it is hard to expect a high yield. But not all investors are seeking high returns. Sovereign funds and pension funds look for stable, long-term earnings by nature. That is why the government considers them ideal shareholders for Woori Bank.
However, the IR presentation confirmed that the Korean banking industry lacks stability and that regulations and bureaucracy are irresponsible. The government and politics get involved in banks’ decisions on management, appointments and fees, and there have been many cases of pressuring banks to provide funds to insolvent companies.
We do not even have to look far back. The Park Geun-hye administration pushed for “technology financing” to reform the financial industry. The government explained that approving loans by evaluating the caliber of a company’s technology, rather than on collateral alone, would help small and midsize businesses and venture companies while enhancing profitability for the bank. When the president personally mentioned this, the financial authorities felt under strain and put pressure on the banks to show an immediate outcome.
The ability to evaluate the potential of technology cannot be attained overnight, so it became obvious that “technology financing” was a half-baked idea. A source involved in the investigation said there were not enough specialists who could evaluate the technology of companies looking for a loan. One person had to cover more than 80 companies in a month. Fearing a backlash, the financial authorities made a belated plan to revise the system.
The market capitalization of Woori Bank is less than 40 percent of its book value, the lowest in the sector. Since the government is its major shareholder, its share represents the competency of Korean financial authorities and the attractiveness of the industry. No matter how passionately the government advocates financial reform, the assessment of the global financial market will be harsh. If it thought it could attract foreign investors with pretentious reform, it was seriously mistaken.
*The author is a business news reporter of the JoongAng Ilbo.
JoongAng Ilbo, June 2, Page 29
by CHO MIN-GEUN