Better to Sell Government-Owned Banks to Domestic Capital

The National Economic Advisory Council (NEAC) proposed that President Roh Moo-hyun should sell government-owned banks to domestic capital rather than to foreign capital, according to reports.

Therefore, Woori bank, Kwangju bank, and Kyungnam bank, which are owned by the government, are more likely to be sold to foreign capital in their privatization process.

The NEAC released a report titled “Major Issues of the Korean economy” last September, which stated, “Regarding the proportion of foreign capital in domestic banking sector, the privatization of domestic banks is best led by domestic capital,” according to NEAC and Cheong Wa Dae on December 22.

The council added that “the most desirable thing is to establish a financial capital centered on institutional investors so that they can lead the banking sector. However, as it takes quite a while to form a financial capital, the government should seriously consider the maturity level of domestic financial capital when it comes to selling equities of domestic banks.”

The NEAC accepted opinions from the Bank of Korea and the Korea Development Institute (KDI) before writing the report.

The council added, “When selling government equity is unavoidable, it is better to sell it to foreign capital related to banking, which is likely to generate great synergy, rather than foreign capital related to funds that focuses on investments.”

However, the council said, “Until 1999, foreign banks’ asset soundness was the worst. However, now they are among the best.” It went on to say that foreign banks had contributed to the healthy development of the Korean financial sector by enhancing transparency and reforming the structure of financial sector.

The president chairs the council and Cho Yoon-je, advisor to President Roo Moo-hyun for economic affairs, is the secretary of the council. The council is in charge of giving advice to the president regarding major policies. Five figures, including the minister of Economics and the minister of Planning and Budget, automatically become members of the council, and other 30 citizen members include experts in the fields of macroeconomics, industry, and trade.

Jong sik Kong kong@donga.com