The Korea Herald


Regulator warns against excessive bank competition

By 김연세

Published : March 3, 2011 - 19:01

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FSS chief blasts Shinhan for stock options given to ex-chair

Financial Supervisory Service Gov. Kim Jong-chang on Thursday issued a strong warning against excessive competition and executive compensation among commercial banks.

In a meeting with bank CEOs in Seoul the nation’s chief financial regulator cautioned that banks should refrain from behavior that could destabilize their finances and further harm public trust in lenders.

He criticized Shinhan Financial Group for granting stock options to its former chairman Ra Eung-chan, who resigned in October over alleged irregularities.

“Symptoms of external expansion among several banks are emerging,” Kim said during his meeting with bank CEOs in Seoul.

He said excessive banking expansion could lead to another financial crisis. “In that case it would be very difficult to overcome the crisis,” he said.

He cited reckless lending to corporate customers as a main risk factor while also commenting on household loans. He pointed out lenders’ irregular sales of pension funds and bancassurance.

He said the heated race to expand loan assets, which sometimes comes at the cost of bank earnings, is worried to deal a heavy blow to banks’ profitability and drive up chances of potential bankruptcy.

“The FSS will ratchet up oversight of the heated rivalry for external growth by instructing banks to push for higher risk management on loan issuance.”

He also pledged to take stern action on CEOs of financial companies, attributing the 2008 global financial crisis to the inappropriate role of management.

Banks saw their loan issuances grow rapidly at the pace of 13 percent per annum over the past five years on average. Their dependency on risky funding sources such as bank bonds and certificates of deposit also expanded.

Kim’s remarks are drawing wide interest in the market as the tough stance on major banks comes directly during his breakfast meeting with top bankers.

After the meeting, the governor commented on Shinhan Financial Group, whose board members recently endorsed a proposition that former group chairman Ra be entitled to stock option rights.

Kim said he thinks the board members and Ra “are still not in their right mind.”

Ra is one of the three top executives of the financial group, who incurred woes in the financial market in the latter half of last year for his alleged misdeeds including breaching the real-name account laws.

He said, however, that it would be difficult for the FSS to intervene in the case. “We plan to closely monitor whether banks’ internal management structure operates normally.”

The stock options to Ra amounted to more than 300,000 shares. Considering the group’s stock price is hovering at the 47,000 won level, the former chairman could enjoy assessment gains worth billions of won.

On the same day, Financial Services Commission Chairman Kim Seok-dong said in a forum the public is acquainted with Shinhan Financial’s internal feud.

“There would be no future of Shinhan Financial unless the group revamps its structure and personnel policies,” he said.

The Shinhan board members ― in contrast ― put off their decision whether to also offer the same rights to former Shinhan Financial Group president Shin Sang-hoon and former Shinhan Bank CEO Lee Baek-soon.

Ra, Shin and Lee had to quit in turn after alleged irregular practices and their internal feud hit the market last September.

By Kim Yon-se (