Blueprint for 2nd financial reform

The government is promoting a major consolidation in the banking sector that may result in two ¡°super¡± banks, one a union of Hanvit and Cho Hung and the other grouping the Korea Exchange Bank (KEB) with a clean counterpart.

The main aspect of the second round of financial restructuring will be carried out under the projected financial holding company formula, the Financial Supervisory Commission revealed Aug. 2.

The FSC will formulate a blueprint for the bank mergers under the holding companies through consultations with the Ministry of Finance and Economy this month and will advise the banks in question to implement it.

The government`s plan is to merge Hanvit and Cho Hung, in which it owns a majority stake, into a super bank that will deal exclusively with the corporate financing business.

Earlier, the government had planned to launch its super bank by uniting the two banks and the Korea Exchange Bank, but scrapped this plan because an institution of this scope could monopolize both the corporate and international financing sectors.

As for the KEB, the government plans to place it under a clean bank aspiring to become a holding company. The FSC is said to be considering Kookmin Bank as the KEB`s future partner.

Before merging the KEB with a clean bank that wants to convert into a holding firm, the government will dispose of the bank`s non-performing debts through discussions with the Kommerzbank of Germany, the KEB`s second largest shareholder. The government also plans to make KEB a clean bank through a capital increase from the German institution.

The FSC is planning to have all banks submit their end-June capital adequacy data, and the banks which fail to meet the Bank of International Settlements (BIS) ratio of 8 percent will have to draw up their own self-rescue plans.

On the basis of the self-rescue programs, the FSC will embark on a full-scale restructuring of the banking sector through the holding company system in October, a spokesman said.

He said that the government would inject public funds into ailing banks before October or work out restructuring programs for them.