SVB fiasco pressures banking groups to speed up reforms

The Korea Times

The Korea Times

Finance

Sat, September 23, 2023 | 00:03

Companies

SVB fiasco pressures banking groups to speed up reforms

Posted : 2023-03-20 16:29

Updated : 2023-03-21 11:33

By Yi Whan-woo

The bankruptcy of Silicon Valley Bank (SVB) appears to be weighing on Korea's four largest banking groups in the lead-up to their shareholders' meetings scheduled for this week as they come under pressure to commit to reforms.

Scheduled for Thursday for Shinhan and Friday for KB, Hana and Woori, the annual shareholders' meetings will come as financial regulators press the banks to manage more responsibly the financial struggles of their customers in the midst of economic unrest.

The regulators are especially trying to break the oligopolistic banking system dominated by the four financial groups and are calling for transparency in management and governance structure.

The government's "meddling" in private businesses can be controversial in a free market economy. In the case of the banking industry in Korea, however, such "meddling" has been witnessed repeatedly, after the major banking groups prospered through a series of restructuring efforts led by the government since the 1997-98 Asian financial crisis.

"Under the circumstances, the U.S. government measure to prevent fallout from SVB shows that regulators can give up on salvaging management of a banking group if it fails to serve customers properly," Citizens' Coalition for Economic Justice, a Seoul-based civic group, said Monday.

The activist group referred to the Joe Biden administration's rescue plan for SVB as being centered on protecting depositors of the bank, not its management, on the path to safeguarding the nation's banking system.

Speaking on condition of anonymity, an economics professor at Hanyang University voiced a similar view. "The way the Biden administration handles the SVB crisis can set a new example for the Korean government in dealing with banks that do not act responsibly and yet need financial assistance," the professor said.

The professor pointed out that the government of President Yoon Suk Yeol was even considering expanding banking business licenses for insurance and brokerage houses as a measure to break the oligopoly among banking groups.

For Shinhan and Woori, a major topic on both their agendas for their respective shareholders' meetings includes the official appointment of their new chairmen.

Shinhan Financial Group picked Jin Ok-dong as its new leader, while Woori Financial Group selected Yim Jong-ryong for its top post.

Whether to replace outside directors whose terms have expired will be also discussed during the shareholders' meetings of the four banking groups.

The issue is drawing keen attention because the financial regulators' assessment of outside directors failed to monitor management closely. Such failures have led to lax regulatory control and other problems associated with management.

The shareholders of the four banking groups will discuss whether to increase the dividend payout ratio, after raking in massive interest incomes worth more than 40 trillion won ($30.4 billion) in total.

yistory@koreatimes.co.kr