Kang Chungwon, Seoul Bank’s president and CEO, is a man on a mission. The ex-Citi and Deutsche banker has been given until June to get the bank back on track and sold to a foreign investor. If not, it faces the prospect of being dragged into the government’s financial holding company. That’s something Kang definitely doesn’t want. Chris Cockerill caught up with him just before he disappeared on a roadshow attempting to entice a foreign buyer.
Has the recapitalization of your bank and the other five in fact slowed the restructuring process?
Theoretically that is possible. But outsiders need to understand the background and history of the system. It is unfolding and it is changing. For example, we are transplanting international business structures onto Seoul Bank but it will take time. We cannot expect the problems to go away over night.
Do you think you will need a further injection of funds on top of the W5.2 trillion ($4 billion) you have already received?
Well we have taken care of the bad debts and we have let two problematic construction companies go: Dong-Ah and Woobang. As for the whole sector, I don’t think anybody can guarantee that no more money will be needed. The government will probably have to intervene in problems like Hyundai. We all agree that the dangers in the system are being carried over. If we are lucky the market will solve them, if not, then the government will have to face them two years from now.
What is the main issue for Seoul Bank now you have been recapitalized?
Our main priority is finding a commercial shareholder by the end of June. And we are focusing all our efforts on this goal. It’s a tough job but I can tell you that we are changing quicker than others. And what we have done over the past seven months will be exactly what the rest of the sector will be trying to achieve.
Aren’t the changes all just a bit of window dressing?
It is not window dressing. We are very serious about fixing this bank and finding a buyer. The problem with most Korean banks is that their approach to business is to too general. The same guys are doing retail banking and corporate banking. So there’s a lack of specialization and skills. We are addressing this and became the first bank to segregate the front and back offices. We understand that the changes are related to value and unless we do actually change there won’t be any value. By June investors will be able to see the effects of the new credit regime and our non-performing loans will be a lot less. We have recently completed another sale of W720 million of NPLs to the Korean asset management company, and the bank’s NPL ratio is down to about 6%.
Who would be Seoul Bank’s ideal shareholder?
Someone who could maximize the 290-branch network and someone who wants to jump-start their presence in this market.
Why would somebody want to invest in Seoul Bank?
The banking sector has seen significant consolidation within the last couple of years. And given the size of the Korean economy there’s significant room to capture good business. The new buyer will gain a great distribution channel for investment and loan products.
What are the risks?
The general cultural issues for doing business in the Korean banking sector. As with Japan, relative to the US and Europe, you need to deal more closely with the regulators. And you do have the labour issues. The issue has been softened to a great extent but it hasn’t gone away. There is also a need to invest in and upgrade the bank’s facilities such as the branch network and staff. There will be a
need to train the staff so they understand the new methods of banking.
There is still concern about the level of transparency.
It’s all relative, but this bank is one of the more transparent. It’s possible to split the banks [with regards to transparency] into two groups. The healthy banks do tend to have a higher level of transparency, while the ailing banks, excluding Seoul Bank, do still have a problem. The management of this bank comes from
Deutsche and Citibank and so by our very nature we have to be transparent. The bank needs a new shareholder and they need to be able to get to the bottom of the figures. Transparency is the rule of the game. You can’t keep putting these problems under the rug and hope they will go away. Anyway, a message came from the top that we all have to take care of the remaining problems in the banking system by the end of February.
Why don’t you want to merge with another bank, or go into the Financial Holding Company?
We believe in bringing in a new shareholder rather than a merger because we have developed a unique culture. I brought in my management team and transplanted international business practices onto a very damaged Korean bank. And no other bank has gone as far as this. For six months we have been changing at lightning speed. Merging with another Korean bank would destroy the potential value that we have created. I also believe that the only way to guarantee long-term survival is to have more foreign participants. It will make the strong stronger, and the weak go under quicker. As for the Financial Holding Company, there are still too many people in these banks. They are still faced with the need to seriously restructure. I think they need to develop the idea of the FHC further. The only thing the government has done so far is put in new management who have a lot to do. But we should give the government a break because it is in a very difficult situation.
Does this bank suffer from government interference?
As shareholders they can remove me. But they don’t have any grip on me. In terms of credit allocation I haven’t had any issues with the government. They brought me in to turn the bank around, so perhaps there is an element of them leaving me alone more than others. Although there is government intervention there has been a great change and they are intervening less in the banking sector.
But what about the corporate bond market issue?
They didn’t approach me at all. It’s a different programme. I sympathise that we need a programme like this at the moment.
Was KFB’s decision not to get support the bond programme wrong?
You can cut it two ways. One way, KFB may be right. But you have to look at the potential downsides. There would be a very rapid rise in unemployment and a large disruption in the economy. It’s a trade off between the magnitude of the disruption and the cost of one time disruption. The government has a right to intervene and make this process more manageable. I think there’s room to manage this trade off.
