Cronyism in banking

President Lee Myung-bak’s cronies have monopolized the CEO posts at leading banks. This is unprecedented even by the yardstick of the authoritarian era in the 1980s. This current administration has moved the banking clock backwards.

The government has the right to name the CEO of the state-owned bank and Kang Man-soo, the chief architect of Lee’s economic program, is to head the state-run KDB financial group.

What is puzzling is why the government plans to raise Kang’s salary only. Three years ago it was President Lee who ordered the reduction of wages for CEOs in the state-run financial companies.

In four of the five major financial groups in Korea, Lee’s cronies are leading KB, Woori, Hana and KDB. The exception is Shinhan, which has yet to recover from the damage caused by last year’s internal power struggle.

The nation may be one of a few G20 countries where the President’s cronies sway both state-run and private banks. These CEOs are in the 60s, quite old by international standards and they also install their retired pals as outside directors.

Political appointees usually suffer unhappy endings in local banking history. When a new government comes in, they sometimes face expulsion and investigation for any wrongdoings they committed during the previous reign.

IMD ranked Korea 22nd out of the 139 countries it surveyed for national competitiveness. Shamefully the nation stood at a dismal 83rd in banking market maturity.

As long as the President’s cronies are allowed to control banks, the nation has limits in upgrading the global competitiveness of the banking sector. Korean banks need a transparent governance structure that prevents cronies from being named CEOs.