Chaebol’s Bank Control Gets Elusive on Samsung Scandal
By Lee Hyo-sik
Staff Reporter
The unfolding scandal surrounding Samsung Group's alleged creation of slush funds through its units is expected to negatively affect conglomerate moves to take over banks.
Analysts say the allegation that the country's largest business group may have raised tens of billions of won in slush funds to bribe politicians and prosecutors will likely make easing of the rules restricting non-financial companies' investment in banks more difficult.
Also, the finding that for years Samsung Group had opened and maintained borrowed-name accounts at Woori Bank, which was headed by former Samsung Securities president Hwang Young-ki, has prompted banks and civic groups to step up opposition against their ownership of commercial lenders, they said.
Debate over chaebol's ownership of banks has continued for years with opinions being divided among politicians and government agencies. Business groups have been arguing that removing the regulations limiting chaebol's investment in banks is necessary to stop growing foreign ownership, while banks and civic groups say that it will hamper the growth of the financial industry and allow groups to use their financial arms as ``piggy banks.''
Under current regulations, non-financial firms are not allowed to hold more than a 10 percent stake in a bank. Even if they do, they are only allowed to exercise voting rights of up to 4 percent.
Such restrictions were put in place to prevent chaebol, including Samsung, from controlling commercial lenders.
``The ongoing scandal surrounding Samsung Group's creation of slush funds and borrowed-named bank accounts is a publicity nightmare for local business group's attempts to expand their investment into banks,'' LG Economic Research Institute economist Lee Han-deuk said.
He said public opinion had been tilting toward allowing conglomerates to own banks on expectations that it would encourage large business groups to expand investment and create jobs. ``But the Samsung scandal has caused many to worry about the possible side effects, discouraging attempts to lift the investment regulation.''
With the presidential election approaching, many politicians, including Grand National Party presidential candidate Lee Myung-bak, recently pledged support for easing financial investment regulations for chaebol.
The former Seoul mayor said that regulations banning conglomerates from holding major stakes in banks have resulted in adversely discriminating against domestic investors, while foreigners are exerting greater influence on banks and other financial institutions.
He also said to create synergy by combining manufacturing and financial businesses and help strengthen the competitiveness of local financial companies amid intensifying global competition, the country should ease the regulations in phases over the next 10 years.
Also, Rep. Shin Hak-yong of the United New Democratic Party and 13 other lawmakers recently proposed a bill to permit corporate ownership of banks.
However, the Ministry of Finance and Economy, the Fair Trade Commission (FTC) and civic organizations have advocated restricting conglomerates from taking greater stakes in banks.
The FTC said conglomerates will have the tremendous economic power if they are allowed to own banks, adding the government should stick to the principle of dividing the corporate and financial sector to ensure fair competition and achieve balanced industrial development.
Also, the Korea Institute of Finance (KIF) said in a recent report that Korean conglomerates already own more financial firms than companies in other countries. ``No industrial capital controls non-banking firms in other countries and there is no other country like Korea where the separation between financial and industrial capital is so blurred,'' it said.