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By Na Jeong-ju
Staff Reporter
The new government is seeking to raise the financial industry's global competitiveness by privatizing state-owned lenders and easing rules on investment in financial firms.
Some of the hot-button issues include the planned privatization of Korea Development Bank (KDB), Woori Financial Group and the Industrial Bank of Korea (IBK) and HSBC Holdings' bid to take over Korea Exchange Bank.
Companies will take steps to sharpen their edges and overhaul their organizations and product lineups as the Capital Market Consolidation Act, scheduled to take effect in early 2009, will remove barriers between banking and non-banking sectors.
Debates are also expected to heat up on whether the country should allow family-owned conglomerates to own banks.
Rising credit risks and financial market volatility caused by the U.S. subprime meltdown will haunt the new government. Economists say the country has become more vulnerable to a credit crunch due to high interest rates and heavy household and corporate debts.
Also drawing attention is whether the government will stick to tough anti-speculation measures, which have been effective in cooling down property prices but troubled the construction industry.
Capital Market
The financial industry hopes the envisioned Capital Market Consolidation Act will provide crucial opportunities for the country to nurture global investment banks and develop the industry to a global standard.
Banks have acquired or launched bids to buy small-sized brokerage firms amid expectations that the Act will boost demand for investment banking and securities-related businesses.
Kookmin Bank, the country's largest lender, recently took over Hannuri Investment & Securities, a small Seoul-based brokerage firm, while some of its rival banks are seeking to set up their own securities arms or buy existing companies.
Analyst say the Act will ignite a ``big bang,'' ultimately changing the financial landscape for more competition and transparency, while encouraging more merger and acquisition (M&A) activities to create global investment banks. The government is positively considering issuing brokerage licenses to financial firms and conducting a wide range of programs aimed at fostering bigger securities firms.
For their part, banks and brokerage firms are trying hard to secure investment banking experts to develop the area into core growth engines. They have conducted reshuffles to reinforce investment banking bureaus and hired more staff to meet rising demand for securities and real estate investments, project financing and derivatives trading.
``The growth pace of investment banking business here has become faster, as banks raise their stakes on investment in stocks, bonds and M&A deals,'' said Kim Woo-jin, a researcher at the Korea Institute of Finance.
A number of financial firms and business groups are seeking to advance into the brokerage area. Aju Group, IBK, Hungkuk Life Insurance, LIG Insurance, KTB Network and Doosan Capital have expressed intentions of launching the business. Solomon Mutual Savings Bank completed a deal last year to acquire KGI Securities, while Hyundai Automotive Group bought Shinheung Securities with the aim of growing it into one of the top five securities firms here.
M&As of small and mid-sized brokerages are expected to increase.
``As more non-financial firms are showing interest in making inroads into the brokerage area, we expect M&A activities to pick up steam,'' Daewoo Securities said in a recent report.
Brokerage houses such as Hanyang, Kyobo and Yuhwa are on the speculative list for possible M&As. Analysts say such small securities firms are more likely to grab the opportunity to merge with big corporations as it will help build their edge and prepare for the increased competition expected after deregulation takes place on the capital market.
Privatization
The planned privatization of state-owned lenders and public firms will bring about a storm.
President Lee Myung-bak has pledged to return public firms to the private sector, saying their role has diminished as the country has pursued a more competition-oriented society. Also, their excessive expansion is creating unfair competition with private firms, he said.
The government initially planned to sell its majority stake in Woori Financial Group, the country's second largest financial services provider, by March, but decided to lift a state-imposed deadline on the stake sale to sell the shares on the best possible terms.
The continued delay in the privatization of Woori reflects difficulty in finding potential buyers among domestic investors, with big conglomerates banned from buying a controlling stake in any bank.
Government officials have denied speculation that they will block foreign investors from participating in the bidding. Some civic groups, however, have raised opposition to the sale of Woori shares to foreigners, citing growing foreign stakes in domestic banks.
Woori's majority stakeholder, Korea Deposit Insurance Corporation is considering disposing of a 21 percent stake in Woori through a series of block sales next year. Then, the insurer plans to sell the remaining 52 percent stake in an open competition.
The government also plans to sell its stake in the IBK as part of efforts to reform state-owned financial firms. It is expected to announce the exact schedule on the sale early this year.
Also on the sales list is the largest state-owned lender, KDB.
The bank recently set up a task force to seek a smooth transition into a private entity, as proposed by the Presidential Transition Committee.
In January, the transition team announced a three-stage roadmap for the new government to achieve privatization of the bank. According to the plan, KDB should create a holding company that will manage its stakes in private firms and direct privatization strategies. Then, the government should reduce its shareholding in the firm to 51 percent, and set up an investment fund with the money from the stake sale. Lastly, it should sell the additional shares in the holding firm to turn it into a private financial service firm.
Based on the roadmap, the new government is expected to take steps to combine KDB's investment banking unit with its subsidiary, Daewoo Securities, to nurture the merged entity into a global investment bank.
jj@koreatimes.co.kr
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