[Editorial] Gov`t Pressure in the Financial Sector

Kookmin Bank President Kang Chung-won, who was nominated as chairman of the KB Financial Group, Korea’s largest private group for financial services, abruptly withdrew his candidacy Thursday. The group’s extraordinary meeting of shareholders scheduled the same day to officially name Kang chairman was also canceled.

The Financial Supervisory Service allegedly pressured Kang to withhold his candidacy Dec. 3 before the convening of the Chairman Candidate Recommendation Committee, which officially elects the chairman. Kang refused to drop out and outside directors of the group promoted him as the final candidate, so the financial authority conducted an intensive probe in an unusual move. It investigated alleged corruption by an outside director who recommended Kang. Nothing can justify external pressure on a candidate who was elected through due process to withdraw. This practice is also a step back in the advancement of the domestic financial sector.

On the probe into Kookmin in December, financial authorities say it was a due course of action. If the probe was normal, however, why did the authority investigate personal wrongdoings only? Critics speculate that a new candidate whom financial authorities aim to appoint as the group’s chairman will be someone close to the power elite or a former official from a financial regulatory body. It will be outrageous if financial authorities forced out Kang to make way for president of the state-run Korea Asset Management Corp., Lee Chol-hwi, who was a preliminary candidate for the group post, or former chief of the Strategy and Finance Ministry’s planning and management office, Kim Byeong-ki.

Neither Lee nor Kim is qualified for the chairmanship because they have no experience in bank management. Moreover, Lee remains head of his company and must duly carry out his duty. When he applied to become the group chairman, cries of favoritism arose because he is a relative of a key aide to President Lee Myung-bak.

Outside directors must keep a bank’s top management in check. If they colluded with management and sought private interests under moral hazard, the financial authority should have taken corrective measures. Financial regulatory officials also have no right to blame a private financial company for their own negligence.

The way top managers of a bank are elected should be changed. Former ranking officials from the Finance and Economy Ministry (now the Strategic and Finance Ministry) or people with strong connections are often named bank presidents and chairmen, instead of bankers who have worked in the sector for a long time. This is not intended as a defense of Kang, but the presidential office should know that government control of the banking sector is the reason that personnel competitiveness remains weak in the Korean financial market. Financial authorities often change bank presidents at will and command bank directors as if these were their own staff. Korea cannot upgrade its financial industry if the government continues to monopolize top posts in the sector while openly urging the advancement of the financial industry.