Financial groups may see reputation undermined by acquiring distressed institutions
The Financial Services Commission has come under criticism for apparently pressuring major financial groups to take over distressed savings banks.
Bankers expressed skepticism over the financial watchdog’s move after it unveiled plans last week to put ailing savings banks up for auction and suspend operations at some unviable institutions.
They are concerned that banking groups could see their financial soundness weaken and their brand value deteriorate with the planned acquisitions.
“It seems that several financial groups have agreed to the takeover scheme against their will,” said a senior official of a major commercial bank.
Concerning the reported willingness of Woori Financial Group and Hana Financial Group to acquire savings banks, he said, “In effect, they cannot afford to purchase a company.”
Hana Financial urgently needs to find investors for its scheduled takeover of Korea Exchange Bank. Woori Financial must improve its asset soundness ahead of the government’s planned privatization of the group.
He said Korean regulators should stop twisting the arms of commercial banks.
“In case of Citigroup, U.S. regulators instructed the financial group not to increase its asset scale any more for the sake of its financial health.”
Korea was chair of the Group of 20 Summit last year, under which members agreed to strengthen oversight of large-sized financial companies.
He pointed out the fact that the FSC has not asked foreign-controlled banks, including Citigroup Korea and SC First Bank, to participate in the restructuring process.
A banker said this shows the FSC is still far from meeting the global standards.
“Though the FSC said the move is to prevent the savings bank crisis to affecting the whole market, I don’t think failure of several secondary banks would affect the economy seriously,” he said. “Ironically, the government does not mind small- and mid-sized enterprises going under.”
Even an official of the Financial Supervisory Service, an executive arm of the FSC, expressed misgivings about driving financial groups into rescuing troubled savings banks.
Asking not to be named, the FSS official said, “It is undeniable that asset soundness and brand image of financial groups could be undermined with the acquisition of the secondary banks.”
Meanwhile, an FSC official said the policy is the best currently available option to secure market stabilization. “The problems of bad loans held by savings banks are lingering on over the past several months.”
The financial watchdog suspended Samhwa Savings Bank for six months until Jul. 13 for its poor financial health. The FSC is expected to take similar actions on other major ailing savings banks in the coming months.
By Kim Yon-se (email@example.com