By Kim Tae-gyu
Staff Reporter
Will the landscape of the struggling domestic banking industry face sweeping changes? Possibly! It is a plausible scenario according to the country's top financial regulator.
Financial Services Commission (FSC) Chairman Jun Kwang-woo insinuated Thursday that the government may step up in order to reconfigure the banking system.
``Banks are supposed to be conservative in operation but ours have focused merely on expanding businesses,'' Jun told reporters in New York, where he is trying to attract investment to Korean firms.
``In particular, they have been busy making money via selling funds while turning a blind eye to diminishing savings. We may rearrange things to match them in a different way,'' he said.
Jun went on to comment on measures employed during the Asian financial turmoil in 1997 and 1998, when a host of local banks disappeared or changed their titles through sell-off's or mergers and acquisitions (M&A).
``To cope with ongoing financial distress, we are reviewing various tools from the past and particularly during the currency crisis a decade ago,'' Jun said. ``I think the government is required to play a crucial role.''
The FSC has spearheaded setting up an organization to take charge of restructuring any sagging industries alongside other state agencies.
Thus far, builders and shipyards have been regarded as the major targets of restructuring but Jun added banks to the list.
When contacted, however, FSC spokesman Yoo Jae-hoon said that the government would not come up with any overhaul plan of banks in the near future.
``We keep an eye on banks but we don't have an immediate plan to reconfigure the industry,'' Yoo said, refusing to discuss Jun's observation of possible restructuring.
``Basically, our banks are doing well in tough times. The Bank for International Settlements (BIS) capital ratio, which caused concern, would also improve later this year,'' he said.
The BIS capital adequacy ratio measures the financial soundness of a bank by comparing its total capital with risky assets. Higher BIS ratios represent better financial health.
The BIS ratio for domestic banks fell to 10.79 percent at the end of September, down from 11.36 percent at the end of June, triggering concerns on the banks' status. Ten percent is seen as a downward limit for healthy banks here.
In this climate, some experts claim Jun's remarks are aimed at taming banks, which have become reluctant to lend to firms and lubricate the illiquid money market.
``Jun seems to threaten that the government may shake the banking system in case banks continue to refuse to provide money to the market,'' said an analyst at a local brokerage, who declined to be named.
``It is sort of an ultimatum. Jun demonstrated his ammunition and it remains to be seen how banks will respond. They may choose a war or a peace treaty,'' he said.