Bailed-Out Banks Still Making Questionable Management Decisions

Questionable management decisions have turned out to be still widespread as Woori Bank and seven other debt-laden banks, which have been bailed out with public money, overspent their operational budgets.

According to data submitted by the Korea Deposit Insurance Corporation to Grand National Party Rep. Lim Tae-hee of the financial committee of the National Assembly, the eight bailed-out financial institutions spent a total of 15.4 billion won in operational expenses, about 2.6 times what should be considered operational expenses under the corporate tax code.

Woori Bank, which was injected with 7.9 trillion won in public funds, spent 6.73 billion won in operational expenses, about 2.9 times more than the legal limit. The National Federation of Fisheries Cooperatives spent 1.74 billion won, about 3.4 times more than the legal cap.

Excessive increases in wages marked another point of contention. At these institutions, the increases ranged from 13.3 percent to 150.8 percent in the years 2000-03.

At the Seoul Guarantee Insurance Company, for example, the average of executives’ wages was 6.5 million won in 2000. Last year, they reached at 163 million won, up 150.8 percent. During the same period, staff wages rose 36.7 percent to 4.1 million won from 30 million won.

What is worse, the eight institutions continually offered loans to their employees at rates lower than the benchmark rate of the National Housing Fund (an annualized average of six percent). “These eight institutions have continually offered cheap loans to their staff from 2000 through June of this year and failed to collect a total of 10.9 billion won in operational profit,” said the KDIC

The institutions also made about 43.3 billion won worth of employee contributions to personal pensions for their employees. In 2001, they paid 29.5 billion won and in 2002, 37.4 billion won in employee contributions.

“These institutions have promised to restructure themselves intensively in a memorandum of understanding with the KDIC,” said Rep. Lim. “Their lackadaisical management will result in a delay in auctioning them off.”

A bank executive said, “Don’t we need to boost our staff’s morale so they can work hard to improve the value of the bank?”

Yeon-Wook Jung sunjung71@hotmail.com