By Kim Jae-won
Facing heavy criticism over its plans to acquire banking giant Woori Financial, the state-run Korea Development Bank (KDB) appears to be getting desperate in its attempts to sell the potential deal to the public. It remains to be seen whether the bank was wise to link the much-anticipated merger with peace and prosperity on the Korean Peninsula.
KDB is looking to acquire the government’s $6 billion-plus stake in Woori and is touting the idea that the size of the combined company would be ideal to finance large-scale development projects in North Korea after its unification with the South.
Political observers will say that unification between the two Koreans may never happen. The difficult relationship between the two countries, and the troubled North’s increasing dependence on China for its economy and security, doesn’t inspire any confidence.
KDB continues to fantasize about a unified Korean government and how it would need enormous financial resources to advance under-developed North Korean regions.
``We have a wealth of experience in development projects. Our absorbing of Woori Financial will allow us to provide a broader range of financial services with increased efficiency,’’ a KDB official said.
The response from market observers is one of ridicule. The merger of the two state-run lenders is pushed by the thinking that the country needs a global financial heavyweight.
Critics question whether the financial sector could produce its own banking giant while the largest lenders here are punching embarrassingly below their weight on the road. Most local banks have been exposed for their ineptitude to find sustainable growth overseas and manage human resources capable of executing big international deals, they say.
``KDB’s obsession for size is just incredible. But size, as in assets or market share, doesn’t matter for a lender that is inept in maximizing profit,’’ said an analyst from Kyobo Securities, who asked not to be named.
``Maybe KDB has discovered some logic that nobody else knows, but this obsession is hard to understand. If they need to talk about North Korea to convince others, then maybe something isn’t right.’’
KDB’s talk of a unified Korea is more curious when considering that it wasn’t involved in many development projects in North Korea at times when the two Koreas were cooperating economically.
``We have no detailed programs for development projects above the demilitarized zone (DMZ). “We have no detailed plan for the programs yet,’’ a KDB official admitted.
Woori Bank, the key subsidiary of Woori Financial, is one of the few financial companies here that has earned its North Korea business stripes. It’s the only Korean bank that has a branch in the Gaesung Industrial Complex and it also runs a currency exchange office at the Dorasan Station for South Korea companies that run facilities in the complex.
The state-run Korea Deposit Insurance Corp. (KDIC) has a 57 percent stake in Woori Financial, and the government plans to unload it by September. The government was forced to halt the sale of its Woori stake last December after failing to find buyers capable of acquiring a controlling stake in the company.
KDB is seen as the lone suitor, with other major banking groups like KB Financial, Shinhan Financial and Hana Financial declaring that they have no interest.
Merging KDB and Woori would create a mammoth, nationalized bank with some 500 trillion won (about $464 billion) in assets. With KDB emerging as the leading contender for Woori, critics are accusing policymakers of attempting to bail from their efforts to privatize Woori and recoup the massive amount of public funds spent to rescue it in the fallout from the late-1990s financial crisis.
The government’s ownership in the combined company would be around 80 percent, which could mean privatization becomes a fantasy.
The government pumped 12.8 trillion won ($11.9 billion) of taxpayers' money into financial firms that later merged into Woori Finance, and had recovered 5.4 trillion won as of the end of 2010.
The potential KDB-induced shake up of Korean banking has been fueled by bureaucratic thinking that it is high time the country has its own, supersized banking group that could hold its own against other national champions and raise its profile in investment banking.
Kang Man-soo, the former finance minister who took over the management helm at KDB earlier this year, has consistently been the most vocal evangelist of this so-called “megabank theory,” which is why some industry insiders consider the possible KDB-Woori deal as inevitable.
KDB’s aspirations to acquire Woori moved a significant step closer to reality earlier this month when the Public Fund Oversight Committee, headed by Financial Services Commission (FSC) Chairman Kim Seok-dong, announced new ground rules for the resumed sale process. The committee required bidders to buy at least 30 percent of Woori or seek a merger with the firm, much to the frustration of banking groups like KB Financial, which had expressed interest in Woori’s brokerages unit but not the whole package.
The relaxed regulations for the sale sparked criticism that it paves the way for KDB to use public finances to buy another state-run financial firm in Woori. The FSC set the goal of privatizing Woori Financial to retrieve the taxpayers' money that was spent to salvage the company.
KDB Financial is also one of the targets that the Lee administration is pushing to privatize. According to the revised law governing the running of KDB Financial, the company is required to offer its shares to the public and sell at least one share to a private shareholder by May 2014.