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Adjusted bank restructuring unavoidable

Posted July. 12, 2000 20:12,   


With the successful conclusion of government-labor negotiations, adjustment of future bank restructuring plans seems inevitable. Firstly, among the banks that received public funds and were to be incorporated into financial holding companies as subsidiaries, a bank would survive independently. Even for the unhealthy banks, it is the government`s plan to revive these banks by using the financial holding company as a support base, should those banks have definitive rehabilitation plans.

Basically, the previous scheme to first incorporate banks into a financial holding company and then merging them has been adjusted to a plan that banks will be joined together after disposing of unhealthy elements. As long as the government`s will is adhered to, there will be no forcibly closing of banks. In return, the people will have to again pour a substantial amount of funds into the unhealthy banks.

- Banks with public funds aiming to survive on own: Among the banks which received public funds such as Hanvit, Chohung and Seoul, some may be able to stand on their own feet. However, this is conditional to the acceptance by the 8 member evaluation committee to be established that the rehabilitation plan is feasible. The evaluation committee is anticipated to be extremely stringent in their appraisals and hence only 1 out of the 3 banks is expected to take the path to self-rehabilitation without receiving public funding. This scheme seems to be a partial victory for the financial labor union in relation to their demand for the delay of the financial holding company.

- Government to inject additional public funds: In relation to the financial holding company scheme to be utilized in the 2nd restructuring round, industry experts have continued to criticize on what synergy effect can be obtained by bundling up the unhealthy banks through a financial holding company. This argument was also made by banks, which had the distinct possibility of being forcibly merged after joining the financial holding company, for defending their positions. The government accepted the criticism and decided to make insolvent banks into clean banks with BIS ratios of over 10% before incorporating them into a financial holding company, provided pro-active rehabilitation efforts are made and accountability exists.

In addition, the government clarified its position that even though the relevant banks are incorporated into a financial holding company as subsidiaries, forcible mergers will not take place.

The government promised to respect the labor-management agreements in relation to organizational and personnel reduction. But as self-rehabilitation is impossible with personnel cuts or organizational contraction, the banks to be incorporated into a holding company will have

to implement such actions.

A chairman of a bank remarked that although the government has stated banks under a financial holding company can become independent once the bank has been normalized. This however is easier said than done. An official of the Financial Supervisory Commission asserted that banks lacking the ability to stand alone, which refuses to join the financial holding company, will be closed down and public funds will not be injected so easily.