Why the calm?
But even with the global financial market in shock, Korean financial companies are generally calm. Korean banks only have 4.8 of their assets overseas, and just 1 percent of securities. They are more concerned with the domestic situation than the international trends.
To foreigners, Korea’s financial market is beyond unique, bordering on strange. The Korea Development Bank is a government-run bank, but it has 132 non-financial subsidiaries. It holds stakes of more than 5 percent in 377 companies.
Meanwhile, the company sends former and incumbent executives to various positions at companies it has invested in. It was managing and overseeing the embattled Daewoo Shipbuilding and Marine Engineering, but no one noticed an employee embezzling 18 billion won ($15.2 million) to buy luxury goods and jewelry. It is a government-run bank, but how can this be allowed in a country where financial capital and industrial capital are strictly separated?
The power of finance was once mighty. Samsung Electronics, the biggest company at present, was swayed by its main bank, Hanil Bank, in the 1970s and ’80s. Companies used to need approval from banks for major investments. Companies were desperate to get helps from banks as the interest rates were high and companies were short on cash.
But the situation has reversed. As of June 24, 2016, the market capitalization of Samsung Electronics is 200 trillion won. The combined market cap of the four major banks — Shinhan, KB, Hana and Woori —stands at a mere 44 trillion won, only 22 percent of Samsung Electronics. Last year, Samsung’s net profit was 19 trillion won — 5.6 times of net profit of all Korean banks, which made a combined 3.4 trillion won.
In the ’70s and ’80s, finance supported the real economy and contributed to the growth of major manufacturing industries. But while the manufacturing sector expanded abroad and became international, finance remained domestic due to government regulations and a lack of competency. As time went by, they settled for the way things were and lost the animal spirit of change. As their growth slowed, they fell behind the competition. There was no Lee Byung-chull or Chung Ju-yung for the financial sector.
Korean finance is like a frog in water slowly combing to a boil. The government puts ice cubes of deregulation to lower the temperature, but the measures are only temporary. We may want to listen to Korea Financial Investment Association CEO Hwang Young-key’s claim: “When the plumbing and gas pipes are too old to repair, it is better to rebuild completely rather than partial renovation.”
JoongAng Ilbo, Jun. 27, Page 30
*The author is the business and industry news editor of the Korea JoongAng Daily.