Bank Executives Fear When They Should Step Down

As the competition between the leading banks in banking industry is getting intense, replacement of key executives, including CEOs, has been undergone excessively. The research shows that two out of three executive officers has been shifted during the past three years.

Due to mergers and acquisitions (M&A) between banks and the opening of financial markets, the percentage of foreign officers has become higher, and executives who have work experience at foreign financial companies are more preferred.

The leading banks such as Kookmin and Woori have executed a big replacement in executive positions as new CEOs take office. However, Hana bank internally focused on consolidating structure, and maintained the terms of its executive officers.

This is the report that Dong-a Ilbo released on December 8 regarding the analysis on the status of bank executives. The study was held on January 2002 (Hana bank on December 2002, Korean Foreign Exchange Bank on May 2002) and December 8, 2004, which surveyed eight major banks such as Kookmin, Woori (formerly Hanvit Bank), Shinhan, Hana, City (formerly Hanmi bank), Choheung, Korean Foreign Exchange bank, and Cheil bank.

As a result, among the 95 executives in eight major banks as of January 2002, only 31 officers (32.6 percent) are maintaining their position as of December 8, 2004.

A total of 64 officers (67.4 percent) have been shifted for even less than three years.

Before the financial crisis in 1998, bank executives had a guaranteed term of three years, while holding another position as registered director at the same time. However, since 1999, the majority of officers have been dismissed to unregistered executive officers, as each bank extended the percentage of external officers of the board of directors to more than 50 percent. In addition, the widespread performance-based system has increased the replacements, even by one or two years.

The percentage of officers who previously worked at foreign financial companies increased from 16.8 percent (16 people) to 30.3 percent (30 people), and that of foreign national executives increased from 7.4 percent (seven people) to 11 percent (11 people).

In January 2002, 14 officers including former CEO Kim Jung-tae out of 16 executives of Kookmin bank were replaced. In particular, with the designation of new CEO Kang Jung-won, the number of executives who were from foreign banks has sharply increased from one to seven.

Cho Young-moo, a researcher in the LG Economic Research Center, said, “Since 2002, when the system of eight major banks was established, banking industries are focusing on structure renewal and protection of the market in order to be the leading bank.” But, Cho added, “Frequent replacement of executive positions can vitalize the system, whereas the risk of weakness has been increased due to short-term achievement.”

Kang-Woon Lee Cheol-Yong Lee kwoon90@donga.com lcy@donga.com