State-run banks hinder corporate restructuring -2015.11.12.목.코리아타임즈-

[황보 지훈]

By Yoon Ja-young

State-run banks are failing to lead the corporate restructuring of insolvent companies, the Korea Development Institute (KDI) said in a report Wednesday.

The country's leading think tank analyzed corporate restructuring by the Korea Development Bank (KDB), Export-Import Bank of Korea, and Industrial Bank of Korea (IBK) on insolvent companies where these banks are the main creditors.

Compared with the companies where commercial banks are the main creditors, it took on average 2.5 years more for these companies to enter a workout program.

"The state-run banks expanded financial support for companies that started showing signs of insolvency, delaying the start of work-out programs as a consequence," said Nam Chang-woo, an associate fellow at the institute.

"Instead of requesting preemptive corporate restructuring, the banks had a tendency to delay this based on optimism," he said.

The state-run banks were ineffective even after they had started the work-out programs for bad companies because they were more reluctant to sell assets or lay off workers.

"With companies where commercial banks are the main creditors, 70 percent sold off assets within three years of the start of their work-out programs. But with companies indebted to state-run banks, only 33 percent did so," Nam noted.

The report noted that such inefficiency may have to do with the fact that state-run banks should take into account non-economic factors in corporate restructuring.

KDI advised that the state-run banks should sell the bad assets of the indebted companies to an independent "corporate restructuring company" free from the conflicting interests of creditors.

"In the case of conglomerates or listed companies which have multiple creditors, the state-run banks lack the means to lead agreements about restructuring. Moreover, there could also be moral hazards," Nam said.

He said that state-run banks should focus on the restructuring of small and medium sized companies where they can play a bigger role.

With the country's main industries such as shipbuilding, steel and construction suffering from the global slowdown, problems have been arising. State-run banks, however, have been injecting funds into these big companies, extending the life of zombie companies instead of leading corporate restructuring.

KDB's plan to inject an additional 4.2 trillion won into Daewoo Shipbuilding and Marine Engineering is also causing concern, as the company has already sustained over a 3 trillion won loss in the first half of this year.

The government plans to set a task force in each state-run bank to prevent the deterioration of their financial condition. "When the financial health of state-run banks deteriorates, it will burden the whole nation. We will prepare measures to prevent this," Strategy and Finance Minister Choi Kyung-hwan said at a meeting Tuesday.

yjy@koreatimes.co.kr